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Incompetent Communications Corporation Executive Summary

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Incompetent Communications Corporation (ICC) operates a large fiber optic network, including voice, data and television programming services, and sells these services as cable package to residential and commercial customers in 31 states. The cable package contains 311 network broadcasts and 299 pay per view movie, sports and content channels. ICC also owns seven television networks. In order to offer more services for customers, ICC purchases broadcast from thirty-parties and pays license fees to them. ICC also runs three production companies to make movies. The first company is located in India and sells original content movies for both ICC itself and other customers. The second company only operates in Orlando, FL; and the movie content mostly …show more content…

All costs paid or incurred for producing a live or delayed television program, including license fees paid to a third-party, are added to the unadjusted depreciable basis; however, the license fees shall exclude from computing the direct labor and overhead. For instance, if a taxpayer incurs $200 ($20 for direct labor, $100 for license fees paid for third-party, $80 for property rental for broadcast) of total costs for a production of broadcast, so the unadjusted depreciable basis as the denominator for the film would $200, and the direct labor and overhead cost as numerator would be $100. Refer to §199, the taxpayer is qualified for computing the safe harbor for film production. While the taxpayer does not incur $80 for property rental, the unadjusted depreciable basis would be $120 and the direct labor would be $20. Based on calculation, the taxpayer does not satisfy the 20 percent requirement, so under this circumstance, the license fees paid to the third-party could not help the taxpayer apply for safe harbor. Based on the information above, ICC should not claim license fees paid to third party content providers as overhead when computing the PDAD safe harbor even though the license fees constitute more than 20 percent of total

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