Posts Tagged ‘State Auditor film credit report’

Tax Roundup, 8/13/2012: Let the film credit revisionism begin! Also: a study in retirement planning.

Monday, August 13th, 2012 by Joe Kristan

http://www.rothcpa.com/misc/20090604-1.JPGStill Star-struck in Iowa.  Even after Iowa’s embarrassing and disastrous film tax credit fiasco, there are still people who think it’s a nifty idea for taxpayers to subsidize Hollywood, reports the Quad City Times.  Take Kent Newman, described as “a former board member with the Iowa Motion Picture Association who does production work in the Des Moines area and remains connected with various aspects of the film business.”:

 Newman said there were many positive aspects from the film tax credit program that included considerable training for young people interested in working in the entertainment industry and several projects that successfully used the tax incentives to complete high-quality productions. However, when the incentive program was suspended in 2009 many projects and people moved to Michigan, Louisiana and other places where there were jobs being offered.

An interesting observation.  Iowa spent $32 million, of which $28 million was pretty much pure waste and/or fraud, based on the state auditor’s report on the film program.  For that we trained people who moved away.  Success!

Newman said in the current environment that “unless and until Iowa has some level of a competitive incentive program that is well managed, we’re never going to have very much production happening here.”

He said he was hopeful local communities would fill in that void by offering to waive the first month of hotel-motel tax for production crews or other incentives that could entice film projects in the range of $3 million to $10 million that would headquarter in an Iowa city where they would be a short distance from rural locales that would be prime destinations for a film shoot.

In other words, unless we pay Hollywood to be our friends, they won’t like us.  Unless every business and employee who is already paying taxes here working for unsubsidized businesses ponies up tax money to bribe the filmmakers to come here, they won’t come here.

If Hollywood wants to make movies here with their own money or money from private investors, fine.   We should have a business environment that is welcoming to in-state and out-of-state entrepreneurs.   Then you don’t need “incentives” in the first place.

 

It doesn’t make sense to bribe other businesses either.  Some wisdom on Tax Policy from David Brunori ($ link): 

As first reported in the Las Vegas Sun, Nevada’s decision to grant Apple $89 million in tax breaks was made by one man. The decision rested with Steve Hill, the state economic development director. Where would one unelected bureaucrat get the power to hand over $89 million to a corporation that has a market capitalization of over $500 billion? Why would Nevada give a dime to a corporation that has revenue of over $110 billion and profit of $26 billion?

     In a society that has laws against everything, you’d think there would be some prohibition against handing over public money to fabulously successful private enterprises. Nevada politicians claim that Apple will hire 35 (yes, 35!) employees. Apple will also invest $2 billion over the next 30 years. But the truth is that Apple would have invested in Nevada even without the tax breaks. That’s almost always the case when states give incentives to individual businesses.

And don’t get me started on wind tax credits.

 

Sure they’re humble nowHumble church founders convicted of tax fraud. (Chron.com).

Assisted living would have been cheaper.  A user of the absurd “1099-OID” tax refund scheme faces expensive but substandard retirement living, according to a Department of Justice Press release:

Richard Kellogg Armstrong, 77, of Prescott, Ariz., was sentenced today by U.S. District Court Judge Robert E. Blackburn to 108 months in prison followed by three years of supervised release.  Judge Blackburn ordered the sentence to run consecutively to the 660 day prison term and $1,021,500 of fines cumulatively imposed upon Armstrong as punitive sanctions for 10 acts of contempt of court. He also ordered Armstrong to pay restitution to the Internal Revenue Service (IRS) in the amount of $1,678,834 and to forfeit two residences and a personal aircraft.

He gets to start over when he’s 86.  That’ll be fun.

The 1099-OID scheme claims that one way or another the government has a bunch of money for you that you can claim by dummying-up a 1099-OID showing withholding for you.  Wikipedia covers it here.   You can see an item advocating it here, but good luck trying to make any sense of it.

 

Jim Maule watches People’s Court and ponders tax and other implications.

Jana Luttenegger, Taxing Gold Meals (Davis Brown Tax Law Blog)

It’s Romney-Ryan,and the tax bloggers are on it:

Kay Bell, Don’t look for GOP vice presidential nominee Paul Ryan’s tax returns either

TaxGrrrl, Romney, Ryan and Reagan: The Winning Team?

Anthony Nitti, What Does Paul Ryan Mean For Potential Tax Reform?

Tax Break, Essential reading: Attack targets Romney’s role in Marriott tax deals, and more

Peter Reilly: Son Of Boss – Don’t Blame Romney Blame His Tax Pros

Robert D. Flach keeps Buzzing his roundups of tax blog posts from his new Pennsylvania lair.

Finally, Russ Fox tells us that the Accountant Who Solicited Hit Man Pleads Guilty:

Back in March I reported on Steven Martinez.   Mr. Martinez is a tax preparer who faced charges of stealing $11 million from clients.  He decided that the best strategy to fight this charge wasn’t hiring a good attorney, nor was it trying to disprove the charges; rather, he decided to hire a hit man to kill four witnesses.  (One reason he didn’t try to disprove the charges is that they were true; Mr. Martinez has admitted he took the $11 million and used it to buy a home in Mexico and other personal expenses.)

The only saving grace about criminals is that their stupid usually undoes their evil.

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Another film credit criminal trial winds down

Tuesday, March 13th, 2012 by Joe Kristan

The trial of Dennis Brouse, known to public TV viewers for his shows about horses, is winding down, according to a story by Lee Rood in the Des Moines Register, which apparently just started printing coverage. Before the trial closes, accountant Chad Witter, who served as a broker for film tax credits, is expected to testify today.
It appears the trial centers around non-cash “expenditures” used to claim millions of dollars in transferable film tax credits, which could be cashed out by selling them at a discount to investors. From the Register’s story:

Brouse

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Benz-buying Borchers busted

Thursday, October 27th, 2011 by Joe Kristan

UPDATE, 12/8/11: Charges dropped. Original post below.
The director of the remake of Children of the Corn, who famously bought a Mercedes with Iowa taxpayer dollars through the Iowa film credit program, has been charged with bilking the program through allegedly inflated costs.
The State Auditor Report on the film program says that the Children of the Corn project was rewarded tax credits for over $1.9 million in ineligible or unsubstantiated expenses. It doesn’t appear that the car is among them.
The Des Moines Register contacted Donald Borchers:

Reached Wednesday, Borchers declined to comment on the new charges filed Friday against him. Rather, he voiced frustration with the Des Moines Register for saying he could not be reached for comment in September 2009 for an article focusing on when Iowa’s former economic development chief knew about potentially abusive expenditures within the program.
Borchers said he tried to reach the newspaper. Had he been interviewed, he would have said that former film chief Tom Wheeler approved the purchase of the Mercedes as a way of stimulating Iowa

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The Snooki veto

Tuesday, September 27th, 2011 by Joe Kristan

New Jersey Governor Christie has vetoed tax credits for the TV show “Jersey Shore,” reports TaxGrrrl. Fine. But why should his taxpayers be funding Hollywood at all? Isn’t the Iowa example enough to show how foolish it is to give tax money to the film industry?
Related: Auditor report: millions of real taxpayer dollars paid for imaginary film expenses

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Former Economic Director: the Benz tipped us off to the looting

Thursday, August 25th, 2011 by Joe Kristan

While his underling at the Iowa Film Office was giving away millions of taxpayer dollars to fund pretend expenses, the Iowa Director of Economic Development was oblivious. Then Mike Tramontina heard about the cars. Rod Boshart reports at EasternIowaGovernment.com:

The former head of the state Department of Economic Development said Wednesday he was not aware of brewing problems in the agency

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Iowa Department of Revenue takes the stand in film trial

Wednesday, August 24th, 2011 by Joe Kristan

The Iowa Department of Revenue made its appearance at the trial of former Iowa Film Office Director Tom Wheeler yesterday, in the form of its tax policy guru, Jim McNulty. The testimony shows that there were clues to the ongoing Film Office disaster available in other parts of the state government that weren’t picked up.
From Lee Rood’s Des Moines Register piece:

Jim McNulty exchanged numerous e-mails with Wheeler in 2007 and 2008, giving him advice on a wide range of questions regarding what was acceptable under the new program. McNulty said he based his opinions on what he knew about existing tax law and from consulting others.

For example, McNulty confirmed he sent an email to Wheeler saying that films that were registered with the state by July 2007 were eligible for tax credits, contradicting others in state government who contended after problems erupted that films did not qualify unless they had signed contracts.
He also told Wheeler in emails that services-in-kind, or services provided in which no cash changed hands, were eligible to qualify for tax credits if certain criteria were met. That

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Goat trial begins today

Monday, August 15th, 2011 by Joe Kristan

The centerpiece criminal trial in the Iowa film tax credit fiasco gets underway in Des Moines today. Former Iowa Film Office Director Tom Wheeler faces felony misconduct in office charges for his role in the disastrous program.
For Mr. Wheeler, the trial will be a harrowing experience, but for the rest of us, it promises comedy gold. The prosecution will try to lay the blame for this multi-million dollar disaster at Mr. Wheeler’s feet. The defense will try to spread the blame around state government like a rogue honey wagon. His superiors at the Department of Economic Development will get splattered, certainly, but the manure hose will also be pointed at the Department of Revenue. From the Des Moines Register:

For example, Wheeler said, emails in his trial will show he sought guidance on various expenditures from the state Department of Revenue, including in-kind, deferred or sponsorship transactions in which no cash changed hands. Many industry experts later said such transactions should not have qualified.


Flickr image courtesy carlfbagge under Creative Commons license.
These money-for-nothing deals led to the issuance of millions of dollars of transferable tax credits by the Department.
The State Auditor’s report outlining the disastrous administration of the program shows that Mr. Wheeler has plenty to answer for. But felonies? The trial looks like an effort to blame the fiasco on one inept bureaucrat. Whatever Mr. Wheeler’s failings, he had a supervisor. He was appointed by a Governor, and his program was authorized by an almost unanimous Iowa General Assembly. None of these people face criminal charges, yet they bear the ultimate responsibility for the disaster. If bureaucratic ineptitude is a crime, they should just lock the state office buildings from the outside at night.
Other coverage: AP story
Tax Update film credit coverage:
Sharks circle goat
Iowa Film Follies: Harold Hill meets The Pussycat Dolls
Ten years for filmmaker Runge
Let them eat canapes
Complete Tax Update film credit coverage

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Iowa film credit program has only $20 million of bleeding left to do

Wednesday, August 10th, 2011 by Joe Kristan

EasternIowaGovernment.com reports that the Iowa’s remaining exposure to the disastrous Iowa Film Tax Credit program is down to $20 million. Before the program was shut down, it was estimated as high as $330 million.
The state has been negotiating settlements with film producers who lost their credits when the program collapsed. From the report:

The latest settlement was over $265,000 in state tax credits and nearly $60,000 in cash paid to the producers of a feature-length film called

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First Iowa film credit scandal trial opens today

Monday, February 7th, 2011 by Joe Kristan

Minnesota filmmaker Wendy Weiner Runge goes on trial today on charges of looting the Iowa film tax credit program. She’s in for the fight of her life, as three of her partners have already worked out deals with the prosecutors and will presumably take the stand against her. The Des Moines Register reports:

One of those partners, Matthias Saunders, has already pleaded guilty to first-degree theft.Prosecutors allege he greatly inflated expenses for rental equipment used on the film, such as two brooms that cost $225, six road cones for another $1,350 and stepladders for $900 to $1,350.
Runge, executive producer of the film, also sought and won millions in tax credits for expenses provided “in-kind” – or at no cost – by Saunders’ company, Maximus Productions.
But Runge has contended that those in-kind services – totaling $3.7 million – were approved by several people in state government, not just fired film chief Tom Wheeler.

I expect prosecutors to use the State Auditor’s report on the scandal as their road map. Ms. Runge is likely to try to turn the tables by making the case about the state’s shameful mismanagement of the program, also amply documented in the auditor’s report.
The trial is being held at Drake University, which annually hosts a trial for the benefit of their law school students. It seems like an appropriate show-business setting for a show-business trial. Among those likely to follow the drama closely are two other filmmakers facing felony charges arising out of their use of the program, Bruce Heppner-Elgin and Dennis Brouse. A Quad Cities “film credit broker” also faces charges.
The “half-price filmmaking” program briefly made Iowa a favorite destination for Hollywood. Iowa’s media watchdogs were bought off by celebrity sightings and hors d’oeuvres until the program collapsed when reports emerged of taxpayer dollars buying Mercedes cars and feather beds for producers and iPods for their relatives. So far, interestingly, no criminal charges have come out of the Benz and iPod purchases.
Related:
The Iowa ‘let’s pretend’ film credit
Auditor report: millions of real taxpayer dollars paid for imaginary film expenses
Complete Tax Update film credit coverage

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Iowa Film Fiasco felonies? Wheeler charges upgraded, more film figures charged

Tuesday, January 11th, 2011 by Joe Kristan

Things got much more serious yesterday for former Iowa Film Office Director Tom Wheeler. The Attorney General’s office dropped the former misdemeanor malfeasance charge against the besieged bureaucrat and replaced it with three seven felony misconduct charges related to the now-suspended Film Tax Credit program.
The Attorney General also charged film credit broker Chad Witter with scandal-related charges — the first brought against an industry middleman. Two film industry figures — Bruce Heppner-Elgin and Dennis Brouse — also were hit with felony charges. Rod Boshart reports:

In the five felony counts brought against Witter and Brouse, prosecutors allege they knowingly made false statements for the purpose of procuring state economic development assistance for the Changing Horse film entity and did take possession of property exceeding $10,000 in value belonging to the state by unlawfully reporting fraudulent or inflated spending claims for tax credits.

The five felony charges against Heppner-Elgin allege he knowingly made false statements for the purpose of procuring state economic development assistance for

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The film-credit double-dip

Monday, November 1st, 2010 by Joe Kristan

The real meat of the Iowa Film Program was two separate 25% tax credits — an “expenditure credit” for the filmmakers and an “investment credit” for the investors. These credits were “transferable,” which means they were sold to third parties at a discount for cash.
The two 25% tax credits led the Iowa Film Office to promote “half- price filmmaking,” leading a stampede of grifters film artists to Iowa to cash in make art and causing film trucks to appear all over the landscape. But there was just one little problem: a provision in the investment credit law saying that no investment credit was allowed for an expense for which an expenditure credit was claimed.
But nobody noticed. Even though the Film Office promoted “Half-price filmmaking” on its web site and in the press, the drafters of the legislation never said anything. Neither did the Department of Revenue. The Attorney General’s Office was silent until after the program collapsed in scandal in September 2009; at that point somebody read the law closely and noticed the little sentence. But by then, according to the State Auditor report issued this week, $12 million in excess credits had already been issued based on this error — $4 for every Iowan.
It’s hard to imagine a more damning indictment of the negligence of Iowa’s political class. All but three of the 150 state legislators voted for it. One legislator in particular was a tireless booster of the credit. The “Half-price filmmaking” was no secret. But nobody who drafted or voted for the bill spoke up. The tax administrators who drafted the rules for the credits never spoke up. And the money just gushed, until things blew up.
Related: Auditor report: millions of real taxpayer dollars paid for imaginary film expenses

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Auditor report: millions of real taxpayer dollars paid for imaginary film expenses

Wednesday, October 27th, 2010 by Joe Kristan

Before the Iowa Film Tax Credit program exploded in scandal in September 2009, the state had granted $31,967,641 in transferable tax credits to filmmakers. Yesterday the State Auditor reported that $25,576,301 were issued improperly — a full 80% of the credits granted.

The 127-page report identifies two principal sources of the bad credits: the use of “in kind” expenditures, and double-dipping on the credit computation.

The “in kind” expenditures are best understood as “pretend” expenditures. From the report (page 12):

For certain projects, an expenditure was claimed for goods or services provided by a vendor in exchange for promotional advertising in the production. For example, the film included an acknowledgement such as “This film was produced with help from our sponsor, (sponsor

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