Business Expenses

[S T]

T/P incurred expenses to raise capital for a Film Project with a producer who also wrote the screenplay. He had a contract with the Producer, wherein he would capture 5% of the capital raised, (referred to as a "Finder" in the contract) however, would not receive income until the pre-production began. t/P states this is common in Hollywood and sometimes can take up to 2 - 3 years. No income! $18,000 expenses plus mileage.

T/P will not be pursuing in 2008. My guess is that it is reported on Schedule C, however no income and all expenses really makes me nervous!

Has anyone had any experience with these types of ventures, any thoughts?

Thanks

Sandy

[S T]

More thoughts

In discussing this, a thought was brought up.

Would it be appropriate to use these expenses as startup or organizational expenses, and either amortize over 60 mos, or take the $5,000 expense in the year ( 2007) that t/p realized there would be no income and his contract was terminated?

Background: T/p entered into a contract with a screenplay writer/producer to raise venture capital for pre-prouduction and would receive 5% of the capital raised as his compensation. After working on the project for most all of 2007, t/p could not raise the venture capital investments and his contract was terminated.

Thanks for any insight.

Sandy

[winnie]

Two questions to resolve

First: has business started? If you haven't started the business, then you are still accumulating start up/organization costs until you have started the business. I am not clear enough on the facts and circumstances in your situation.

Second, assuming business has started, then you need to look at hobby loss rules. TTB does a great job with that discussion. I know that it is a little nervy to take big expenses and no income, so have things in order. Is your client in this for profit or fun? Do they act in a business like manner? Keeping books and records? Is there a business plan? ...

If business has started and you determine that your client is in a business (as opposed to a hobby), take your losses and have the back up to support that. Also, be sure to charge your client appropriatley!

[winnie]

second thought

Rereading your posting, this may be investment loss for Sch. D instead of a business loss. Termination of contract indicated that investment is now worthless? Have you thought of that?

[Kram BergGold]

Uniform Capitalization

First you need to check the uniform capitalization rules becasue these affect filmakers.

[DTS]

Sandy

Is it possible that there would be no loss taken, as this venture went belly-up before it started, thus no deduction for your client?

Dennis

[S T]

When does busines start

Therein is the question.

When does this t/p business start? He has a contract with a "producer" for "finder's fee" to raise venture capital for the producer's film project. T/p is not connected to the film project in any other way.

If he was successful in raising the venture capital t/p would receive 5% commission of the venture capital raised.

His expenses incurred were telephone, travel, copy expense, postage for mailing, etc. Mileage for meetings.

Sandy

[DTS]

start-up

Just thinking out loud here!

I am assuming from your last post that this is the first time has done this sort of thing?

Is it possible that he intended to start this business with many similar contracts in '07, did start the business, signed the "first" contract of many and it was unfortunate that this particular contract was cancelled? Seems that if this is the case, the expenses would be deductible, as he was ready to "open the doors" for business. I know you said he was not going to pursue in '08. Many businesses start and close up the first year.

I'm not trying to be flippant, or trying to guide your thinking into mirky waters, but trying to explore the situation a little more.

Dennis

[Davc]

From the facts presented in the OP the TP was in business. His business is the service of attempting to raise capital.