Income Forecast Method Provision

INCOME FORECAST METHOD PROVISION

Mr. BREAUX. Mr. President, I would like to engage in a brief colloquy with the distinguished chairman and ranking member of the Finance Committee, Senator GRASSLEY and Senator BAUCUS, regarding a provision in the bill that provides needed clarification and helps to insure an accurate reflection of taxpayers' income.

The provision I refer to resolves certain uncertainties that have arisen recently regarding the proper application of the income forecast method, which is the predominant cost recovery method for films, videotapes, and sound recordings. The provision merely reinforces the continued efficacy of existing case law and longstanding industry practice. For example, the provision clarifies that, for purposes of the income forecast method, the anticipated costs of participations and residuals may be included in a property's cost basis at the beginning of the property's depreciable life. This was the holding of the Ninth Circuit in Transamerica Corporation v. U.S. (1993). The provision also clarifies that the Tax Court's holding in Associated Patentees v. Comm., 4 TC 979 (1945), remains valid law. Thus, taxpayers may elect to deduct participations and residuals as they are paid. Finally, the provision clarifies that the income forecast formula is calculated using gross income, without reduction for distribution costs.

I would like to confirm my understanding with Senator GRASSLEY and Senator BAUCUS that by providing these clarifications and eliminating uncertainty the provision was intended to put to reset needless and costly disputes.

Mr. GRASSLEY. I am happy to confirm the understanding of the distinguished Senator from Louisiana. The provision was adopted to provide needed clarifications in order to eliminate the uncertainties that have arisen regarding the proper application of the income forecast method. I believe the disputes that have arisen regarding the mechanics of the income forecast formula are extremely unproductive and an inefficient use of both taxpayer and limited tax administration resources. By adopting these clarifications, I believe the committee intended to end any disputes and prevent any further waste of both taxpayer and Government resources in resolving these disputes. Any existing disputes should be resolved expeditiously in a manner consistent with the clarifications included in the bill.

Mr. BAUCUS. I agree with the distinguished chairman of the Finance Committee, Senator GRASSLEY. The disputes resulting from any uncertainty regarding the proper application of the income forecast method are extremely unproductive and wasteful. To avoid further waste, resolution of any disputes must be resolved in a manner consistent with the clarifications contained in the bill.

Mr. BREAUX. I thank both of my distinguished colleagues for this important clarification. I hope this puts to rest any uncertainty and wasteful disputes regarding the proper application of the income forecast method.