IRS Section 181 Vs. New Markets Tax Credits (Real Estate) For Tax Attorneys, Corporate Tax Departments, CPA's, Hedge Funds, Private Equity Investors

THE NEW MARKETS TAX CREDIT

The New Markets Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs). Substantially all of the qualified equity investment must in turn be used by the CDE to provide investments in low-income communities. The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period.



An organization wishing to receive awards under the NMTC Program must be certified as a CDE by the Fund.



To qualify as a CDE, an organization must:

* be a domestic corporation or partnership at the time of the certification application;
* demonstrate a primary a mission of serving, or providing investment capital for, low-income communities or low-income persons; and
* maintain accountability to residents of low-income communities through representation on a governing board of or advisory board to the entity.


The FEDERAL HISTORIC PRESERVATION TAX INCENTIVES PROGRAM


The 20% tax credit Preservation Tax Incentives reward private investment in rehabilitating historic properties such as offices, rental housing, and retail stores. Abandoned or under-used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices in many cities have been restored to life in a manner that retains their historic character. The Preservation Tax Incentives have also helped to create moderate and low-income housing in historic buildings.


Under the provisions of the Tax Reform Act of 1986, a 20% tax credit is available for the substantial rehabilitation of commercial, agricultural, industrial, or rental residential buildings that are certified as historic. The credit may be subtracted directly from federal income taxes owed by the owner.


The Historic Preservation Tax Credit Program benefits the owner, the occupants, and the community by:

o Encouraging protection of landmarks through the promotion, recognition, and designation of historic structures
o Increasing the value of the rehabilitated property and returning underutilized structures to the tax rolls
o Upgrading downtowns and neighborhoods and often increasing the amount of available housing within the community.



The American Jobs Creation Act Of 2004: 100% Federal Deductions + 20-30% State Tax Credits!



In the United States, the 2004 enactment of Section 181 of the Internal Revenue Code of 1986 (the “Code“) marked an unprecedented change in U.S. policy toward the phenomenon known as “Runaway
Production“.


Runaway Production refers to a film or television production that leaves one state or country to be filmed in another purely for economic reasons. This movement occurs because producers tend to film in the location where they can minimize production costs through tax incentives, cheaper labor.

Over the years, Canada has been the greatest beneficiary of U.S. runaway productions (according to some reports, Canada has claimed up to 80% of the U.S. runaways, generating an economic impact of $10.3 billion in production output in 1998 alone).


Section 181 represents the first time that the U.S. federal government has recognized this impact by passing tax legislation to actively combat the flight of film and television programming.

Section 181 permits a 100% write-off for the cost of certain audio-visual works, regardless of what media they are destined for (e.g., theatrical, television, DVD, etc.).

An individual or company who makes an investment into Section 181 qualified productions can take a 100% deduction of their investment against their passive (individual) or ordinary (as C Corporation) income in the year their investment was
made.

The deduction can be made against active income should the investment be made by or through a widely held C corporation. The law is in effect until December 31, 2009, therefore investments must be made before that date and the money invested into qualifying productions must be spent by then by the productions.


An example, should an individual or corporation that is taxed at a 35% tax rate have passive income to take a deduction against, then should that individual make a $1 Million investment into a qualified production or film fund, the actual net investment will be $650,000 since they can take a deduction against that full $1 Million against their passive income, and 35% of $1M is $350,000, which is the value of the deduction they can make in the year they make their investment. Therefore, 1M minus $350,000 is $650,000 which is the net amount of their investment into the qualified production.

However, an investor or Company can also receive an additional 15-30% in state tax credits on the entire budget of a film BEFORE profits and other exit strategies that Noci Pictures Entertainment has in place.

This clearly shows a premium in tax credit and tax liability deduction compared with the other Federal Tax Credit Programs available.


Further, The Section 181 and State Programs benefit the tax credit investor, the producers, and the community by offering:


In the Short Term:

1. 100% passive or ordinary income deductions under the IRS Section 181 "American Jobs Creation Act" for both individuals and corporate tax payers
2. 20%-30% in State Tax Credits (depending on state)
3. Economic Development
4. Job Creation, Including For Minorities And Women
5. ROI on Investment of 60-100% prior to revenues


In Medium-Long Term it would offer

1. hedge of revenues (after Section 181 and state incentives of 60-100% ROI) back to investors from individual or a slate of films
2. Discount of future taxation from income under Section 199 for a Section 181 investment
3. Conversion Option in LLC to Common Stock for additional liquidity via reverse merger in U.S or exit IPO on London AIM


SECTION 199
Section 199 is the income section; it is called the manufacturing section of The American Jobs Creation Act, 2004. Film Production has been defined as a manufacturer but television is not. Section 199 does not apply to television.

This section says that any manufacturer (Film Production) can have some tax relief on money returned to the investor.
o from 2005 till 2007 the taxpayer is entitled to a 3% deduction
o from 2007 to 2010 they get a 6% reduction
o And from 2010 on the get a 9 % reduction.

For example, if an investor get $1.00 back on a investment in a movie after he has already written off 100%, then he will only be taxed on .94 cents if I he is given it back between 2007 to 2010. From 2010 on then an investor gets to pay taxes only on .91 cents and it stays at this 9% rate.

If you are a tax planner, CPA, or tax attorney at a U.S. corporation with a high Federal/State tax liability; an ultra high net worth investor, family office, hedge fund, fund of fund, private equity group and would like more information on how a structured Section 181 investment can offer you an ROI of 60-100% prior to revenues, please contact me at yuri.rutman@sbcglobal.net or 310-651-0799/

How Not To Invest In Or Make A Film

Recently I had the privilege of being invited to a test screening of a locally made film here in Chicago and the first question I asked myself after painfully watching it was as follows--

"Who in their right mind decide to play Baccarat with hundreds of thousands if not a million or so dollars on this doomed film"?

After doing a little investigation I realized that sometimes when daddy or mommy want the kiddies to do more with their lives than bitch and moan about a new BMW, they have to write them a check no matter what to fund their Hollywood dreams.

Well that's the problem. There is no more "Hollywood" infrastructure that is linear and everything is based on doing a lot of homework and having a solid sales team in place before you make the film.

These filmmakers unfortunately, did not do theirs.

Fresh out of film school they automatically broke every rule by believing the first script they write should be made regardless how horrible it is. Now, I am not knocking down film makers, I am just saying its 2009 and you don't make films that seem to have a subject matter best for a 1992 Chuck Norris meets Jeff Fahey film (If anyone even remembers Jeff Fahey, I'll owe you something--not sure what)

Anyways, with a B.A. in film and bad script, they did what a lot of first time film makers and producers do. They cast actors that they are fans off, and not actors that can help sell a film.

They also did so without enlisting the help of a foreign sales agent to tell them, okay--if you use these actors, you'll get so and so dollars from Burma and Ivory Coast.

Worse, the lead actors they used, one of them was a season regular on a cable series with no name recognition, the second lead was a great local actor who no one has heard off outside of Chicago, and third lead was an ex-name actor who was in the film for 5 minutes that they are giving top billing to.

And they didn't even use legal counsel but downloaded forms off the internet.

Recently when one of the producers told me they did not get into Sundance, I suggested perhaps they call up CAA, Endeavor, William Morris, ICM, UTA, or Cinetic Media to help rep the film (no matter how bad it is), instead of them playing lottery and filling out applications for every film festival that calls themselves a film festival.

His response was looking and acting like he was going to cut my throat if I dare give him advice.

Heck, I even gave him the names of a few foreign sales agents to help him sell the film and he looked at me like i was the anti-christ of his dreams and negative.

Okay, so what's the lesson of the day?

The film festival and distribution channels are very very tight so getting a return on equity on an indie film is next to impossible if you don't do the homework.

So, here goes

1. Pick a script that can be sold internationally, even if it does not get into major film festivals.

2. if you have investors, make sure you have a private placement memorandum that gives them their Section 181 benefits and sales of state film tax credits as part of the ROI on equity.

3. get a brand name entertainment attorney to help validate your existence

4. get a producers rep and/or foreign sales agent before you cast film

5. Get actors that people in Greece or Byelorus can recognize (unless you can get a domestic theatrical deal ahead of time and not worry about having Brad Pitt or George Clooney be in your film)

6. Plan and prepare a nice way for online distribution so you can get at least 100,000 people downloading your film at 9.995-19.95

And off course, pray, eat, love, hug a tree, chant, and hope the stars are aligned for you to succeed.

How the $50,000 or $500,000 Angel Investor, Hedge Fund, Private Equity Group, Or Corporation Can Get A 100% Deduction Under IRS Section 181

Alright, so you woke up one day, checked your Swiss Bank Account, called your family office planner, had breakfast with your private client service wealth manager, got your tax accountant on the phone, and between the three of you, you decided to invest your highly taxable income from either your Company's ordinary income or your personal passive income not into some dubious hedge fund or start-up biotech venture or God forbid, real estate, but a tax advantaged investment that gives you a 100% deduction under Section 181 as well as a 50-100% return on your investment before profits into film.

Now, this may not ring too well initially with your hedge fund manager neighbors who are going belly up in Connecticut, your oil and gas investor friends in Bahrain, Dhubai, Or Houston, your neurosurgeon, dentist, hot shop commodities traders, and real estate developer buddies, but aren't these the same guys who are financing Hollywood blockbusters?

And the only question for you, how do you get in the game without feeling like the Uncle of the film school student who wrote his nephew a $1,000,000 check for a film that starred his theater department classmates and ended up as a free download on youtube.com?

So after doing your share of homework, here's what you discover may be the opportunity to spice up your wealthy but boring life, while at the same time helping to create jobs and stimulate the U.S. Economy.

*Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

*There are various tradable state, federal, and international tax credit incentives that would offer a premium based on an equity position. Assuming there is a 10 million dollar budget film, where 50% of it is in equity, and 50% is through international distribution guarantees prior to release. Now assume there is a 20-25% tax credit on the entire amount of $10 million dollars, which will immediately translate into $2-2.5 million tax credit to an investor.

*Numerous hedge funds and private equity players such as Citigroup, JP Morgan, Dune Capital, Elliott & Associates, Texas Pacific Group, Stark Investments, and even Citadel are financing film production.

*The explosion of international DVD, pay-per-view, home video, cable, megaplex theaters, the future of multi-lingual Internet video on demand downloads, and cross-market digital distribution including low-cost theatrical digital projection, the movie industry is accelerating at an unprecedented growth rate.

*The American Jobs Creation Act of 2004, which amends the Internal Revenue Code of 1986, was signed into law . The Act creates three tax incentives expressly applicable to motion pictures, one of which - § 181 of the Internal Revenue Code - is especially significant to independent film producers and their passive investors on qualifying films with budgets under $20 million dollars.

*The filmed and other entertainment sectors are constantly outperforming and beating analyst expectations with regards to growth, and are the only industries resistant to untimely global events and adverse economic conditions.

*Movie Investor returns may be more favorable and more liquid than holding direct equity positions in most public entertainment and other public companies, real estate investments, and other alternative investments.

*There is a huge demand, audience, and growing distribution structure for specialty independent, ,crime, horror, and other low budget films as exemplified by the success of such films as "Slumdog Millionare", "Vicky Christina Barcelona", "Brokeback Mountain", "Sideways", "Capote", "Garden State", "Napolean Dynamite", "Y Tu Mama Tambien", "My Big Fat Greek Wedding", "Memento", "Crash" , "Saw 1 &2", Friday The 13th", "Halloween", "Texas Chain Saw Massacre", "Hostel" and "Wolf Creek", which was made for $800,000, bought for nearly 4 million dollars prior to its release by Dimension, as well as "Hustle and Flow" which was made for $2 million dollars and bought for $16 million by Paramount Pictures.

*Apart from large blockbusters such as "King Kong", "Harry Potter", and other large scale studio films, the majority of studio-produced films have been under performing at the box office. The films that have been successful for studios were all externally financed and or co-financed with studios, sold for 2-3 x their costs, and a majority of them retained foreign sales rights to maximize revenues.

So after looking at all the great benefits, how do you actually go about finding a deal or movie project where you are certain that half your money isn't going to be used by a Hollywood producer as a down payment on a new mansion in Pacific Palisades?

The key that separates the successful film financiers vs. the newbie Oil magnates who come to Los Angeles with a pocketful of money and end up leaving with half a pocketful of money is called several things: structured finance, leverage, risk minimization, multiple exit strategies, tax credits, and the ethical consciousness of the filmmaker/producer.

What does that translate to you in a real world scenario. Lets say you want to finance 100% of a $1.5 million dollar low budget genre film whose worst case scenario is a DVD release and profits from international sales and perhaps some other equity sweeteners in the conversion of the securities that you subscribe for as part of the deal. Well, if you write a check for $1.5 million, and the film is shot in a state that has 30% in tax credits, you get back $450,000 in tax credits + under Section 181, you are able to write off that amount under Federal. So you are already making a nice return before the profits kick in. Then you figure you sell the film to 50 countries, and if you are really lucky, you sell the film for 3-4 times it cost to a studio at a swanky festival like Sundance, Toronto, Cannes, etc. Do this over 5-10 films and you can make a very profitable name for yourself among the Hollywood elite.

But lets really take this a step further and see how the bigger boys leverage film investing because they can get a bigger star which can translate in larger overseas sales. Lets say a filmmaker/producer has a $10 million film and you want in on the action. You would park $5 million in equity, receive an 20-30% tax credit on $10 million which will be $2-$3 million, the producer will get the biggest star he can, get a studio to kick in the other $5 million dollars, you wont worry about ever seeing a penny from the theatrical release because you know your DVD profits and international sales will cover your equity position. Make sense?

Now leverage this with different budgets, genres, stars, distribution, places where you can get high tax credits and you are on your new career path as a sophisticated and educated film financier. Off course, if you want to go even further and guarantee 100% of your capital, there are tricks to that as well.

Okay, so you have half a clue on how this works but lets boil it down to planet earth in terms of numbers.

You only have $50,000 to invest and you want some sort of absolute guarantee aside from the lure of upside. Here's how it would work.

If $50,000 is applied to a film shooting in Illinois where there is a 30% Tax credit, you would get approximately $15,000 in cash after the film is shot and the Illinois tax credit is sold. Then under Section 181, you would get approximately a $17,500 (35% tax rate x $50,000) reduction on your Federal Income taxes against your passive income as an individual or your ordinary income as a C Corporation if you qualify for a total return of $32,000 prior to the revenues of the film.

If you want to up the stakes and go for the glory and invest $1,000,000, same formula above and you would get approximately $650,000 back before the film is even edited! 30% IL tax credit x $1,000,000 + 35% Section 181!

Alright, so now you are salivating and thing this is too good to be true. With all the economic sky falling on Wall Street and Main Street why didn't you ever know about this manna investment strategy from the heavens?

Well, it gets even better. Let's say you don't need the Section 181 benefits because you are a large hedge fund or are based outside the United States and have a large minimum investment size of $10 million or $100 million+ and you want some additional insurance your money will come back to you one day.

No Problem. Utilizing a popular strategy in Asian structured finance, your capital can be guaranteed 100% using static or dynamic hedging!

If you are really motivated and want to be the next Warner Brothers or Summit Entertainment Or Lions Gate, you can use the principal protected investment to allocate prints and advertising to guarantee a theatrical release on every movie that's made and know you will make your money back regardless of upside!

If you have any further questions on your quest to a movie premiere on the French Riviera at the Cannes Film Festival or simply watching it on the big screen, you are a qualified active accredited investor, hedge fund, fund of fund, Venture capital or private group, family office, or corporation that would rather reduce its Federal tax liability by rolling it over into a Section 181 deal to help create jobs and stimulate the economy and/or get 100% principal protection of your capital, and its a burning a hole inside your heart and soul, contact yours truly at yuri.rutman@sbcglobal.net or visit www.noci.com for more info.

Reasons Why Investing in Film During Wall Street Financial Crisis May Help Boost the US Economy

With the nation on the brink of economic collapse, Wall Street panic at an all time high, and hedge funds and financial institutions disintegrating, New York based Elliott Associates has parked an additional $1 billion into Ryan Kavanaugh's Relativity Media which will finance a large slate of Universal Pictures' films over the next few years.

And the question remains "why?" in today's economic crisis as well as the recent pull out of billions of dollars in institutional capital from the studios.

No matter how bad things are in the world, people need to be entertained. And while the crowd mentality of panic in the U.S. financial markets exists, overseas, properly structured commercial films generate more revenues which add to bigger distributor buys with the Euro vs. USD.

Apart from Elliott Associates, other investors including billionaires,family offices from Wall Street to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood

Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

While the glamour of the movie business may be appealing to most, at the end of the day, it is still an unknown business that many try to gamble on, and only a handful come out as winners. The real key is to minimize risk, maximize profits, and offer a steadier stream of revenues than what other alternative investments may offer such as real estate, oil & gas, commodities, hedge funds, or practically any other investment in today's market.

Instead of dazzling investors with smoke and mirror Monte Carlo simulation models that offer various IRR's and scenarios based on unpredictable film revenues streams,the key is to offer an absolute return on investment utilizing international and U.S. public tax incentives that in certain instances can guarantee 100% or more of invested capital prior to revenues by leveraging equity positions with non-recourse debt.

Investors who either want to take a 100% Federal deduction under Section 181 or "The American Jobs Creations Act" against their ordinary income, get an additional 20-40% in tradable and monetized state tax credits or cash rebates, have a hedge of revenues from a slate of films, as well as stimulating local and international economic development, and creating jobs, including for women and minorities.

Sound too good to be true?

Not too many other alternative investments can offer tax incentives, multiple exit strategies, the potential to guarantee 100% of capital, giving back to the American economy and labor, while being involved with the moviemaking process that would also add to the long line of recent film funds that have been structured with numerous hedge funds, private equity investors, corporate tax credit buyers, and institutions.

In today's shaky financial markets, not too many businesses can be started that can have an almost predictable ROI prior to operations and profits.

Yuri Rutman is a visionary entrepreneur who has seen his lifelong passion to make movies and break into Hollywood slowly manifest itself into a reality. From his childhood days as an immigrant, he believed in the American dream through perseverance, certainty, focus, and overcoming any obstacles. After spending more than ten years cultivating industry relationships, Yuri Rutman raised money online from an Angel Investor in San Francisco whom he never physically met until after "Mr. Id was produced. On the strength of the initial business plan, the Investor wired money to finance the project a few weeks later. He currently has an innovative principal protected film fund and tax credit investment fund for accredited investors, institutions, etc. He is skilled in investor risk minimization, private equity, exit strategies, global film finance, and creative endeavors. Please visit http://www.noci.com

Yuri Rutman's Chicago Private Equity And Tax Incentive Deal Is Part Of Investment Trend That Executives From Microsoft, EBAY, PAYPAL, FEDEX are on

A quiet trend has been emerging as billionaires and other high net worth Angel Investors and Family Offices from Wall Street To Silicon Valley To the Middle East have been parking their money into Hollywood.

Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

And the question remains “why?”

While the glamour of the movie business may be appealing to most, at the end of the day, it is still an unknown business that many try to gamble on, and only a handful come out as winners. The real key is to minimize risk, maximize profits, and offer a steadier stream of revenues than what other alternative investments may offer such as real estate, oil & gas, commodities, as well as risky hedge funds.

Well one Chicago/L.A. based media finance Company is taking a different approach in presenting its entertainment opportunities to the super rich as well as private equity groups. Instead of dazzling investors with smoke and mirror Monte Carlo simulation models that offer various IRR’s and scenarios based on unpredictable film revenues streams, it is offering an absolute return on investment using public tax incentives that in certain instances can guarantee 100% or more of invested capital prior to revenues.

Noci Pictures Entertainment is putting together a slate of films using an innovative hybrid public-private finance strategy aimed at investors who want to take a 100% Federal deduction against their ordinary income, get an additional 20-40% in state tax credits or cash rebates, have a hedge of revenues from 20-30 films, a possible exit IPO on the London AIM., as well as stimulating local economic development, and creating jobs, including for women and minorities. Oh, and the company’s team includes the former Vice Chairman Of A Major Film Studio.


Sound too good to be true?


“I don’t know of any other alternative investment that can offer tax incentives, multiple exit strategies, as well as giving back to the local economy, while being involved with the moviemaking process", states Yuri Rutman, the head of Noci Pictures. “That would also add to the long line of recent film funds that have been structured with numerous hedge funds, private equity investors, corporate tax credit buyers, and institutions. Heck I don’t even know of any business that someone can start where they know they will receive an exact ROI before they see any profits".

”I am also surprised how many investors, hedge funds, VC, tax planners, CPA’s, tax attorneys, public and private companies have no clue about these benefits”, Rutman adds. “Federal Preservation, New Markets Tax Credits, etc was the usual route for tax credit planning or alternative investments , but film production incentives offer a more liquid premium, equity, as well as little Hollywood adventure and schmoozing with movie stars.”

Rutman adds “Plus, I am reinventing ‘conscious’ film finance. A lot of competitor deals won’t be around in a few years because they didn’t do their homework. I want to be making movies when I am 90”.