‘‘(B) substantially all of such cash is used 
by the eligible independent film production enti-
ty for qualified expenditures, and 
‘‘(C) such investment is designated to be 
used for preproduction, production, and post- 
production of a qualified motion picture film by 
the eligible independent film production entity. 
‘‘(2) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified investment’ shall in-
clude any equity investment which would (but for 
paragraph (1)(A)) be a qualified investment in the 
hands of the taxpayer if such investment was a 
qualified investment in the hands of a prior holder. 
‘‘(3) REDEMPTIONS.—A rule similar to the rule 
of section 1202(c)(3) shall apply for purposes of this 
subsection. 
‘‘(4) EQUITY INVESTMENT.—The term ‘equity 
investment’ means— 
‘‘(A) any stock (other than nonqualified 
preferred stock as defined in section 351(g)(2)) 
in an entity which is a corporation, and 
‘‘(B) any capital interest in an entity 
which is a partnership. 
‘‘(d) ELIGIBLE INDEPENDENT FILM PRODUCTION 
ENTITY.—
‘‘(1) IN
GENERAL.—The term ‘eligible inde-
pendent film production entity’ means any domestic 
corporation or partnership (and any person related 
to such corporation or partnership)— 
‘‘(A) which is organized and operated for 
the primary purpose of producing a qualified 
motion picture film outside the formal studio 
structure, and 
‘‘(B) 
which 
takes 
such 
film 
into 
preproduction, production, and post production 
through financial funding of its own money or 
assets, private investors, financial institutions, 
guarantees, presale advances, or distribution 
contracts. 
‘‘(2) RELATED PERSON.—For purposes of para-
graph (1), a person is a related person to another 
person if— 
‘‘(A) the relationship between such persons 
would result in a disallowance of losses under 
section 267 or 707(b), or 
‘‘(B) such persons are members of the 
same controlled group of corporations (as de-
fined in section 1563(a), except that ‘more than 
50 percent’ shall be substituted for ‘at least 80 
percent’ each place it appears therein).
‘‘(3) RELEASE OF FILM NOT TAKEN INTO AC-
COUNT.—For purposes of paragraph (1), whether a 
motion picture film is released theatrically, directly 
to video cassette, DVD, or any other format, tele-
vision or cable programming movie-of-the-week, 
miniseries, or pilot production shall not be taken 
into account. 
‘‘(e) QUALIFIED MOTION PICTURE FILM.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified motion 
picture film’ means a motion picture film— 
‘‘(A) the budget of which is greater than 
$2,000,000 and less than $20,000,000, and 
‘‘(B) not less than 95 percent of the wages 
or self-employment income paid or incurred for 
producing 
such 
film 
(including 
the 
preproduction, production, and post-production 
stages) is for services provided within the 
United States or any of its possessions. 
‘‘(2) EXCEPTION.—The term ‘qualified motion 
picture film’ shall not include any motion picture 
film which contains actual sexually explicit conduct 
(as defined by section 2257(h)(1) of title 18, United 
States Code.
‘‘(3) BUDGET.—The budget for a motion pic-
ture film— 
‘‘(A) shall not exceed the face amount of 
the aggregate completion bonds issued with re-
spect to the motion picture film, and 
‘‘(B) shall include the preproduction, pro-
duction, and post-production stages of pro-
ducing such film. 
‘‘(4) WAGES; SELF-EMPLOYMENT INCOME.— 
‘‘(A) WAGES.—The term ‘wages’ has the 
meaning given to such term by section 3121. 
‘‘(B) SELF-EMPLOYMENT
INCOME.—The 
term ‘self-employment income’ has the meaning 
given to such term by section 1402. 
‘‘(5) INFLATION ADJUSTMENT.—In the case of 
a taxable year after 2005, the dollar amounts con-
tained in paragraph (1)(A) shall each be increased 
by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar 
year by substituting ‘calendar year 2004’ for 
‘calendar year 1992’ in subparagraph (B) 
thereof.
Any increase under this subparagraph which is not 
a multiple of $1,000 shall be rounded to the next 
lowest multiple of $1,000. 
‘‘(f) RECAPTURE IN CERTAIN CASES.— 
‘‘(1) IN GENERAL.—If, at any time during the 
5-year period beginning on the date of the original 
issue of a qualified investment in a eligible inde-
pendent film production entity, there is a recapture 
event with respect to such investment, then the tax 
imposed by this chapter for the taxable year in 
which such event occurs shall be increased by the 
credit recapture amount. 
‘‘(2) RECAPTURE
AMOUNT.—For purposes of 
paragraph (1), the recapture amount is an amount 
equal to the sum of— 
‘‘(A) the aggregate decrease in the deduc-
tions allowed to the taxpayer under this chapter 
for all prior taxable years which would have re-
sulted if no deduction had been determined 
under this section with respect to such invest-
ment, plus 
‘‘(B) interest at the underpayment rate es-
tablished under section 6621 on the amount de-
termined under subparagraph (A) for each 
prior taxable year for the period beginning on