IRS clarifies tax treatment of film packages on TV channels

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The Internal Revenue Service has issued a revenue ruling clarifying the tax treatment of a package of films on a TV channel in terms of the domestic production activities deduction.

Revenue Ruling 2018-03 clarifies that a package of films such as a television channel that has been disposed of by a taxpayer in the normal course of business as one property may be an item under section 1.199-3(d)(1)(i) of the tax code for determining the domestic production activities deduction under section 199.

The revenue ruling looks at the example of a corporation that licenses a package of films such as a TV channel to customers for a fee in the normal course of business. The package includes films licensed to the company by third parties and films produced by the company itself. The company pays licenses for distribution rights of the films.

The IRS issued a statement last week explaining the context of the new revenue ruling.

“On January 31, 2017, the IRS Large Business and International (LB&I) division announced 13 initial campaigns, as part of its new issue based compliance approach,” said the IRS. “Included in the initial roll-out was a campaign focused on the Domestic Production Activities Deduction for Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters. On Dec. 21, 2017, Treasury and IRS issued Revenue Ruling 2018-03, which provides guidance on the definition on an ‘item’ and allows a package of films offered in the ordinary course of business to be considered an ‘item’ for purposes of determining the IRC 199 deduction. The Revenue Ruling also provides guidance on what activities are considered ‘film production’ and provides guidance on the safe harbor calculation. Consistent with LB&I’s AGILE model for strategic compliance, LB&I will apply the new guidance as it moves forward in the execution of this campaign.”

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