John B. Breaux: “I completely agree with the previous colloquy of my distinguished colleagues on the income forecast method of…”

“I completely agree with the previous colloquy of my distinguished colleagues on the income forecast method of depreciation. The motion picture industry presently is facing a legal cloud that has serious economic implications for the industry. The cloud concerns the tax treatment of residual and participation payments under the income forecast method of accounting, the predominant method of accounting for the industry. In 1993, the Ninth Circuit held in Transamerica Corporation v U.S. that participations and residuals are included in the initial cost basis of a property for purposes of the income forecast method. Yet, despite this clear result, I understand that the Internal Revenue Service is beginning to challenge that treatment. Simply put, this is wrong--as a matter of law, as a matter of policy, and as a matter of fairness. The Transamerica decision continues to remain the proper result under present law. As the Transamerica Court found, the inclusion of participations and residuals in the film's costs is necessary in order to match income and expenses property and to clearly reflect income. I believe we must quickly lift this cloud of uncertainty from one of our most critical industries. I am in agreement with my colleagues that Treasury should issue regulations which eliminate the current uncertainty this year as part of its 2001 Priority Guidance Plan.”