PUBLIC LAW 94-455—OCT. 4, 1976
9 0 STAT. 1593
" (5) QUALIFIED UNITED STATES PRODUCTION COSTS.—
" (A) IN GENERAL.—For purposes of this subsection, the term 'qualified United States production costs' means with respect to any film— " (i) direct production costs allocable to the United States, plus " ( i i) if 80 percent or more of the direct production costs a r e allocable to the United States, all other production costs other than direct production costs allocable outside the United States.
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" (B) PRODUCTION COSTS.—For purposes of t h i s subsection,
the term 'production costs' includes— " (i) a reasonable allocation of general overhead costs, "(ii) compensation (other than participations described in clause ( v i)) for services performed by actors, production personnel, directors, and producers, " ( i i i) costs of 'first' distribution of prints, " ( i v) the cost of the screen rights and other material being filmed, " (v) 'residuals' payable under contracts with labor organizations, and " (vi) participations payable as compensation to actors, production personnel, directors, and producers. Participations in all qualified films placed i n service by a taxpayer during a taxable year shall be taken into account under clause (vi) only to the extent of the lesser of 25 percent of each such participation or 121/^ percent of the aggregate qualified United States production costs (other than costs described in clauses (v) and (vi) of this subparagraph) for such films, b u t taking into account for both the 25 percent limit and 121/^ percent limit no more than $1,000,000 in participations for any one individual with respect to any one film. For purposes of this subparagraph (other than clauses (v) and (vi) and the preceding sentence), costs shall be taken into account only if they a r e capitalized. "(C)
DIRECT PRODUCTION COSTS.—For
purposes of
this
paragraph, the term 'direct production costs' does not include items referred to in clause (i), ( i v), (v), or (vi) of subparagraph (B). The term also does not include advertising and promotional costs and such other costs as may be provided m regulations prescribed by the Secretary. " (D) ALLOCATION OF DIRECT PRODUCTION COSTS.—For p u r -
poses of this paragraph — " (i) Compensation for services performed shall be allocated to the country in which the services a r e performed, except that payments to United States persons for services performed outside the United States shall be allocated to the United States. For purposes of the preceding sentence, payments to a n electing small business corporation (within the meaning of section 1371) or a partnership shall be considered payments to a United States person only to the extent that such payments a r e included in the gross income of a United States person other than an electing small business corporation or partnership.
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