The Perfect Plot

7

Filmmaking is a risky business and in order to get investors to commit to a project, movie producers often look for tax incentives to entice a production company to come to a particular location to film. Company executives are usually sent in to hire local crews, and while doing so, rent cars, stay in hotels, eat at restaurants and buy supplies necessary to pull off their production. All of these expenditures can have a huge, positive economic effect on the location offering incentives. An article posted on Deadline.com tells the story of a Hollywood producer whose movie did not have such a positive impact on the state of Louisiana after he stole $1.13 million in unearned film tax credits.

The article states that the man at the center of this ”Fraud of the Day” and his producer ex-wife misled the state on how he used his production company’s film tax credits. Apparently, he agreed to renovate a dilapidated old French Quarter mansion into a state-of-the-art post-production facility after producing a film in Louisiana. Evidence presented at the trial showed that a $13 million bill was submitted to the state to qualify for tax credits. (The renovation did actually happen, but the house was only valued at $5 million after the renovation. Talk about a money pit.)

In order for film tax incentives to work, production companies must keep track of production-related expenditures made within the state. For example, Louisiana currently offers a 30 percent tax credit on in-state production expenses. So if a production company has $1 million in qualified expenditures, they will receive $300,000 from the state. (If the producer submitted his $13 million bill today, he could qualify for up to $3.9 million dollars. That is quite an incentive.)

The problem with this particular movie producer is that his company’s bills did not qualify for tax incentives. Court evidence showed that there were repeated misrepresentations regarding construction costs, submissions for $1,834,292 in film equipment that did not exist, bills for $962,856 in interest payments made on a non-existent $10 million loan plus $150,000 in fake rental expenses. (Oh, and let’s not forget about another $1.5 million claimed for a hodgepodge of fraudulent fees.)

For his involvement in the fraudulent scheme, the producer received a sentence of five years on probation, a $40,000 fine and 300 hours of community service. His ex-wife received three years on probation, a $10,000 fine and 150 hours of community service for her involvement. Another partner, who also happened to be an actor and film producer, received a sentence of four years on probation and a $15,000 fine. (Incidentally, the actor’s wife, who happened to be a government official in New Orleans, stepped down from her position despite the fact that she was not involved in the scheme. I bet that situation makes date night a bit difficult.)

This entire scheme took advantage of a state budget that has had a difficult time in recent years due to multiple natural disasters. This case defrauded Louisiana and its citizens out of millions of dollars that could have been allocated for critical citizen services. (Perhaps someone should make a movie about what happens to a powerful filmmaker who tries to steal money that doesn’t belong to him. I have the perfect plot.)

Source: Today’s ”Fraud of the Day” is based on the article, ”Seven Arts Founder Peter Hoffman Gets Probation & Fine for Louisiana Film Tax Fraud Scheme,” posted by Deadline.com on March 9, 2016.

A federal judge in New Orleans today sentenced Peter Hoffman, Hollywood’s once-highflying guru of exotic tax breaks, to five years’ probation for defrauding the state of Louisiana out of $1.13 million in film tax credits. The founder of the now-defunct Seven Arts Entertainment also was given a $40,000 fine and 300 hours of community service.

U.S. District Judge Martin Feldman also sentenced Hoffman’s ex-wife, producer Susan Hoffman, to three years’ probation a $10,000 fine and 150 hours of community service for her role in the scam.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.