Iowa Film Credit Report Reveals More Problems; Criminal Investigation Forthcoming

October 5, 2009

The Iowa film tax credits story just keeps getting better (I guess it’s worse, really). Last week the Tax Update Blog reported on even more movie credit unscrupulousness, including feather beds for producers’ tired backs and iPods for their offspring.

Today the results of the outside accounting firm’s report on the film credit program were released. The findings include:

  • Invoices and receipts were missing for 20 of the 22 film projects that received credits.
  • Contracts were changed to increase the budget after approval.
  • Broker’s fees for negotiating credit transfers were claimed as qualified expenditures, generating over $250,000 in credits.
  • Limited liability companies (LLC) were set up in Iowa for the purpose of funneling otherwise unqualified out-of-state purchases through the Iowa LLC, making the purchases appear as qualified in-state expenditures.
  • Out-of-state purchases were claimed as qualifying in-state purchases. Two of the purchases for one film were over $1 million each.
  • Pay for non-qualified labor such as producers, directors, and principal actors were claimed as qualified expenses.
  • Credits were claimed for product placement deals in which the producers would include products in their films in exchange for free advertising. These deals listed as qualifying Iowa expenditures totaled $13.4 million even though there was no payment involved with the deals.

And the list goes on. The Attorney General is launching a criminal investigation regarding the troubled film tax credit program, citing the following reasons:

investment tax credits were not calculated according to the statute; expenses were not adequately vetted and verified; projects were not justified in terms of their economic benefit to the State compared to their cost; and the definition of “investment” sometimes was improperly applied.

But the program still has people fighting for it: the people who benefit at the cost of Iowa taxpayers. Even if the credit program wasn’t a terrifying example of government mismanagement and waste, it would still be unjustifiably bad tax policy.

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