Monday, January 12, 2009

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.

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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

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