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FAQs about Tax Credits
- What are tax credits and why do they exist?
Tax Credits are a dollar for dollar reduction in a taxpayer’s income tax liability. They are created as an incentive to foster particular types of activities and investments. Federal tax credits have been around since the 1960’s.
- How do I acquire tax credits?
It will depend on the type of credit. However, to acquire a credit a taxpayer will normally invest, directly or indirectly, in the entity which creates the credit, unless the credit is specifically transferrable. If the credit is transferrable it may be sold by the entity creating the credit directly to the taxpayer.
- How much do tax credits cost?
They are sold anywhere from 60 cents to 95 cents per credit depending on the time of year and the type of credit.
- This seems too good to be true, is it ethical or legal to buy credits?
Not only is it ethical and legal, but this is something the federal government and state governments want taxpayers to do. Otherwise, the credit programs would not work.
- Who are the biggest buyers of credits?
Fannie Mae and Freddie Mac have historically been the largest purchasers of credits. Traditionally, banks and insurance companies have also been large buyers of tax credits.
FAQs About Georgia Film/Entertainment Tax Credits
For the Purchaser of Film & Entertainment Tax Credits:
- What is the tax credit and why is it available?
In 2005, Georgia approved the Film Tax Credit to generate revenue and entice Film Producers to come to the state. In 2008, Georgia passed O.C.G.A. §48-7-.40.26 to further entice game and film production in the state for the purpose of creating jobs and increasing expenditures in the state. The production company can sell the credits to raise capital to offset expenses of the production.
- What should my tax situation be in order to benefit?
If you have to pay Georgia state taxes you can benefit. We typically sell in minimums of $25,000 and lower, if the amount makes sense to the buyer. If you have income of around $875,000 and are filing single, married filing separately or joint with no significant deductions, you will have an approximately $50,000 state tax liability. You can purchase $50,000 of tax credits at a discount. The discount is priced via the current market. One can assume $1.00 credit would sell between $85 -$89. Whether you’re in the Alternative Minimum Tax (ask your CPA) or not, we suggest you inquire about Film/Entertainment credits.
- When can I buy, and for what years of my taxes, can I take the credits?
You can buy credits now and apply them in any five year period from the year the credits were established by the production company. i.e. – Tax credits bought in 2009 from a company that established credits in 2008 can be applied against liability any year or years from 2008 through 2013.
- What if I buy too many and can’t use them all for the year I thought I would need them?
Tax credits can be carried forward five (5) years from the date in which they were established by the seller (Production Company). For example, tax credits established in calendar year 2008 may be carried forward until used or until they expire on December 31, 2013.
- Do you have an example of my return on my investment?
It depends on the purchase price of the credits and when you file your return. Example: a $100,000 tax bill for 2008 -buy $100,000 of credits for $87,000 in April for $87,000 and file the return April 15 the return is 70+%! The net savings and rate will depend on a number of factors: not only price paid but also the individual’s tax situation (e.g. itemized deductions, effective tax rate, etc.). Our CPA team is available to discuss.
- How does this work on my tax return?
We suggest you attach the IT-Trans which we provide upon closing. On page 5 of Georgia Form 500, you will list the name of the Company that you bought the credits from, the certificate code of the production which we will provide, the Federal ID number, the amount of credits, and use Code 122, which GA has assigned to Film Tax Credit.At closing you will receive a memo providing you with instructions on how to report this on your return, along with a copy of the transfer service agreement. (The transfer service agreement is between the Company establishing the credit and the purchaser of those credits).
- Do I have additional risk of an audit?
We have been advised by the State Department of Revenue that no additional risk of audit will apply.
- Is this legitimate and legal?
Yes. This is a state government program O.C.G.A. §48-7-.40.26. Our legal and CPA teams are available to discuss.
- What is the risk?
MPC partners with the most active CPA in Entertainment Tax credits who provides a “comfort letter”. This letter states that the production company has followed the rules and submitted their expenses properly. We feel that any recapture is mitigated by taking this extra measure and if any recapture occurs at all it would be extremely small. Otherwise, we sell credits from large production companies that guarantee the credits.
For the Production Company Generating Film & Entertainment Tax Credits:
- When is the best time to contact Monarch Private Capital? Why?
Immediately once you’ve decided to film in Georgia. We will help you set up all the proper upfront legal and administrative documents in order for you to obtain the most amounts of credits and save you future problems.
- Where can I find all the rules?
Call us or you can go to the state website: www.georgia.org/Business/Entertainment+Industry+Investment+Act.htm
- When do I get my credits?
As soon as you finish production you can file your return to get the credits.
- Can I sell the credits? To whom can I sell? When can I sell the credits?
Yes, you can sell the credits. Any individual or company who has a Georgia state tax credit need for the year that is designated to the credit. Georgia’s Entertainment tax credit has a one-time transferability restriction. The credits can be sold in multiple closing of $100,000 increments. The credits can be sold as soon as your tax returns are submitted. MPC has buyers and will handle the process.
- What do I need to do to sell the credits?
Our team will assist in the transfer of the credits. Legal closing documents are necessary.
- What is the going price for credits?
The market is fluid and the pricing of credits changes throughout the year depending on supply and demand. MPC works with you to determine your objectives, i.e. highest price, fastest sale, fewest number of buyers, etc.
- Why do I need a broker or MPC?
MPC has a proven process to assure the most amounts of credits and a market price and to mitigate risk, i.e. future liability, etc. MPC is the largest independent Georgia Tax Credit Company with a long history of selling tax credits. Our team is close to the state government overseeing this ACT and we have been instrumental in its formation. We handle this piece so you can be successful at producing.
- Once I sell the credits do I have any liability?
As with any tax return, the appropriate tax authority has a period of time provided under the applicable statute of limitations of the jurisdiction in which to examine returns. The normal statute of limitations should apply in the case of the Company. Any Department of Revenue audit triggered by a production company’s use or transfer of the film tax credit will require the production company to reimburse the Department of Revenue for all cost associated with the audit.
- Is the income from the sold credits taxable?
- How long is the process to sell the credits?
It depends on your objectives and how many credits you will have. Typically we are able to sell credits within a three month time frame.
Click for info about Georgia Film Tax Credits
Recommended Reading for Film Finance & Production
To discuss the sale of transferrable film tax credits created through your state’s Film & Entertainment tax credit program, please contact MPC’s Director of Film Credits Chrissie Merrill.