The reinstated IRC Section 181 is straightforward. It’s the same law that was created for The American Jobs Creation Act of 2004. It’s been extended and approved until 2025.

Section 181 allows investors in a Fourth Man Films movie production to expense all production costs when it is paid. This creates a loss for the production which creates an immediate tax benefit for the investor.

Fourth Man Films is a U.S. motion picture development and finance company with expertise in tax incentivized investments and access to high-end intellectual property and high-impact movie projects.

The biggest influence on people is in this order.

1. Parents
2. Media
3. Government

So it makes sense after parenting to fund family-friendly content that can have a positive impact on our country.

Just from the impact angle section 181 most likely would have a more favorable tax treatment than a charitable deduction would for you as an investor.

IRC Section 168 is still in effect so you have a choice of using the reinstated Section 181 or the 168.  The 168 has no limit on the size of the budget and you must put the movie into distribution to get the write-off.  Those are the two main differences and you can only use one of them, 168 or 181.

The opportunity to use Section 181 can drastically reduce the risk profile of a movie project creating a very nice downside protection and an accelerated upside return.Section 181 caps out at $15,000,000 unless in a low income zone then $20,000,000.

Because the money invested and spent is expensed as incurred, it will create a loss that can pass through to the investor, giving them a tax benefit in the same year as the production once the first day of shooting starts.
So, if $1,000,000 is invested in a movie that is spent on production, then a $1,000,000 loss will pass through to the investors.

Assuming a Fourth Man Films movie investor has an off-settable income of greater than $1,000,000, their income is reduced by that $1,000,000.

If the investor was in the 35% tax bracket, that offsetting would result in a reduction of their tax liability of $350,000. And this is without the film ever selling a single copy.

This can be seen as an instant return (35%) as well as accelerated recoupment for a Fourth Man Films movie investor.

 

Scenario A)
If you invest $1,000,000 it would take $1,000,000 to break even.
$1,000,000 invested
$1,000,000 profit received passed to investor
-----------------------
Return 0 or 0%

 

Scenario B)
By electing section 181 you would save $350,000 in taxes. Putting only $650,000 at risk. Making $650,000 your break-even point.
$650,000 invested ($350,000 tax savings under section 181)
$1,000,000 profit received passed to investor
---------------------------
Return $350,000 or a 53% Return

With larger check sizes Fourth Man Films also offers from time to time subject to availability additional stacking movie investment perks and strategies such as company credits and state rebates.

 

Scenario C Stacked)
By electing section 181 you would save $350,000 in taxes. Putting only $650,000 at risk. Making $650,000 your break-even point.
$650,000 invested($350,000 tax savings under section 181)
$1,000,000 profit received passed to investor
---------------------------
Return $350,000 or a 53% overall return

Return $350,000 + $200,000 state rebate = $550,000 or a 84% overall return

Return $350,000 + $200,000 state rebate + $500,000 company credit = $1,050,000 or a 315% overall return

 

This could also be seen as an infinite return in theory even before first dollar comes in for a $1,000,000 investment, $350,000 tax savings under section 181 + $200,000 state rebate in real money from the state + $500,000 company credit from Fourth Man Films. = $1,050,000 returned from a $1,000,000 investment.

The ideal target goal for Fourth Man Films would be to get Investors 50% of their money back or more before the film makes one dollar through various strategies they developed or that exist. If 100% of your investment can be mitigated or is going to be returned before the first dollar comes in now returns can be seen as infinite.

These strategies usually fit higher net worth accredited investors on the film production side.

Lower net worth investors' strategies exist by investing on the development side. One example would be getting a 20% preferred return once the project starts principal photography while still participating in back-end profits. Or investing as a protective hedge to an existing portfolio since movies are non-correlated to stocks and real estate.

Even if the mitigation strategies can’t be fully implemented, target returns for movies are usually 2 to 3 times the average annual return of the stock markets S&P 500 (8.4%).

Fourth Man Films focused niche genre averages around 25.2% for the top IP. https://www.fourthmanfilms.com/alternative-investments-in-fourth-man-films-are-far-superior-to-stocks-and-bonds/

These lower-budgeted films not only have smaller budgets than Hollywood movies, but they also can offer investors a fairer and more logical recoupment position that will yield faster and higher returns.

The advantage of illiquid investments is that the returns are much higher than liquid investments. They also protect investors from market crashes and panic selling.

Industry estimates that 80% of returns for the investor usually come in within 24 months after the film goes into distribution.

Investors need to be open with their objectives so Fourth Man Films can come up with the correct strategy for them.

Almost all accountants, attorneys, and financial advisors are unaware of these tax breaks and mitigation strategies and lack access to the investment vehicle to implement them. Fourth Man Films can steer investors in the right direction with their knowledge base and expertise.

Very few strategies in the investment world exist like this secret weapon. One similar exception but not exact would be the 1031 exchange in real estate which has made many millionaires and billionaires from that real estate investment strategy.

So where’s the risk most investors or wealth managers would ask since you can get some or most of your money back before the first dollar?

Since projects are usually bonded with a completion bond, have a contingency in the budget from an experienced line producer, the IRC tax code exists, the state rebates exist, ppm security documents exist, etc. The main risk is taking the time to learn and have a discussion or multiple discussions to learn and implement the strategies.

Most allocators do a drive-by analysis in less than 15 minutes instead of using the trust but verify process.

Fourth Man Films is a clean thinking and well-thought-out company that can verify as needed whatever questions that come up and prove them visually or with the proper experts. Every decision is well thought out and based on logic and analysis. Fourth Man Films pays very close attention to every minute detail.

So the main risk is just lack of willingness to do the due diligence, fear of having to learn something new that may take a few conversations to click in the investors' minds and a few hours for verification.

Investors don’t have to know anything about movie production to invest since a 3rd party model is already built using comparable intellectual properties and the risk-adjusted-performance numbers are already built for them. The main decision is just what percentage of your investment portfolio you want to allocate.

Warren Buffet one of the most successful investors of all time reads 6 hours a day. This is why most investors are not elite investors and get average or subpar returns. The leadership at Fourth Man Film reads many hours a day and is not afraid of doing deep analysis or research for their investors.

Fourth Man Films is an investor-friendly company that prefers long-term relationships working with investors for decades instead of a one-time transaction.

Although the production’s license income is less than the cost of production, the investors are “in profit” before the picture itself reaps a cash on cash profit. This surely will continue to be an incentive for investors to invest again with Fourth Man Films.

IRC Section 181 is a huge incentive for movie investors.

For taxpayers who meet the “material participation” test, i.e.,

a) who work more than 500 hours in the business; or

b) do most of the work of the business; or

c) work 100 hours in the business when nobody works more than 100 hours, such taxpayers can use the IRC Section 181 deduction against ordinary income.

The limitation on the Section181 expense deduction for taxpayers who do not materially participate in the business or trade of producing motion pictures is that it can only be used to offset passive income, i.e., rental income from real estate property or passively owned businesses.

IRC Section 181 is for taxpayers who have active or passive income that they wish to defer and/or have recharacterized.

There are three main categories of income: active income, passive income, and portfolio income. Passive incomes include earnings from a rental property, limited partnership, or other business in which a person is not actively involved—a silent investor, for example.

Passive income, when used as a technical term, is defined by the IRS as either “net rental income” or “income from a business in which the taxpayer does not materially participate,” and in some cases can include self-charged interest.

So how does this benefit a prospective investor?

The ability to expense the entire cost of a motion picture in the year that the money is spent can be used to advantage by certain taxpayers to mitigate risk and downside protection, accelerate and increase returns, defer or shelter income in a current tax year to a later tax year.

Additionally, if the requirements are met 9% of the future gross revenues from each Section 181 qualified film is non-taxable under IRC Section 199.

With inflation always lurking and currently roaring, higher returns are needed that can be mostly found in alternative investments. Along with portfolio diversification, tax savings, and tax delay are always a huge upside for Fourth Man Films movie investors.

With the outsized gains available in this asset class that is non-correlated to real estate and the stock market, alternative investments coupled with Fourth Man Films strategies now become a home run for the right investors.