On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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- Movie Director Pleads Guilty to Defrauding the Massachuse...
Movie Director Pleads Guilty to Defrauding the Massachusetts Film Tax Credit Program
Filmmaker Daniel Adams pleaded guilty last week to several fraud charges in connection with two of his films that received tax credits from Massachusetts. The state has a refundable, transferable film tax credit worth 25% of qualified expenses. Expenses for personnel such as actors, producers and directors, so called "above-the-line" expenses, are eligible for the full tax credit in Massachusetts. Adams pleaded guilty to claiming various fraudulent expenditures. For instance, he claimed that he paid Richard Dreyfuss $2.5 million for his role in the 2009 movie The Lightkeepers, when really Dreyfuss was paid only $400,000. As a result, Adams was able to claim $3.6 million in fraudulent tax credits for the film.
Adams also filed false claims, and received an overpayment of $1.1 million, for his 2008 film The Golden Boys. Between the two films, Adams ultimately cheated the state out of $4.7 million in tax credits. The judge says Adams will be sentenced to 2-3 years in prison and 10 years of probation, and will be required to repay $4.4 million to the state.
This is not the first instance of film tax credit fraud. Iowa suspended its film tax credit program in 2009 after rampant fraud and abuse were uncovered. As we noted in 2010,
movie production incentives are bad policy whether or not fraud and creative accounting are involved. They don't deliver on their promises and just serve to funnel public funds to film companies at the expense of taxpayers. States that offer film tax credits are caught in an unproductive arms race. When everyone is part of the incentive battle, the only winner is the film makers who can leverage states against one another.
Fortunately, a few states have begun cutting back their programs recently, but the majority of states still regularly subsidize film productions: together, states subsidized film producers to the tune of $1.4 billion in 2010. For more on why film tax credits are bad policy, see our Special Report on the topic: Movie Production Incentives & Film Tax Credits: Blockbuster Support for Lackluster Policy.
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