Ferrari Films Issues Formal Rebuttal to Forbes Article Mischaracterizing Section 168(k) as "Worthless" for Film Investors

LOS ANGELES--(BUSINESS WIRE)--May 29, 2026--

Ferrari Films founder, attorney, and producer Stacy Kemp Ferrari today issued a point-by-point rebuttal to a Forbes article asserting that Section 168(k) of the Internal Revenue Code is "worthless as a tax shelter to raise financing for films." Ferrari contends the article contains critical legal oversights that, if left unchallenged, could mislead investors and producers who may have entirely lawful and well-structured grounds to benefit from the statute.

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"This article makes sweeping statements that do not hold up under a careful reading of the law," said Stacy Kemp Ferrari, who practices entertainment law and personal injury in addition to producing films. "Most significantly, the article ignores the material participation exception — arguably the most important variable in this entire analysis — and its conclusion that Section 168(k) is worthless for individuals is flatly incorrect when the investor is genuinely and actively involved in the production."

Point-by-Point Response to the Forbes Article:

On the claim that the deduction "only offsets a narrow category of income" for individuals:

This is the article's most consequential error. The passive loss limitations of 26 U.S.C. § 469 — which restrict deductions to passive income — do not apply when an investor materially participates in the activity. Under § 1.469-5T, an investor who participates in the production for more than 500 hours during the taxable year, or who satisfies other recognized material participation tests, qualifies as an active participant. Importantly, participation by a spouse is attributed to the taxpayer under § 1.469-5T, which can further assist investors in meeting the threshold. Active losses can offset any type of income, including wages and business income. An investor in a Ferrari Films Picture LLC who attends production meetings, is present on set, is copied on all project communications, and maintains contemporaneous records of their participation may well satisfy the material participation standard. In that scenario, a $1 million investment generating a $1 million Section 168(k) deduction can offset $1 million dollars of active income — resulting in zero federal income tax liability for that year.

On the claim that "at least 500 hours of active producing services per year" cannot be satisfied by investors:

Ferrari Films agrees that perfunctory involvement does not constitute material participation. However, the article implies this standard is categorically unachievable for film investors, which is incorrect. Investors who are present on set, attend production and investor meetings, review and respond to production communications, and maintain contemporaneous logs of their time and activities can satisfy the 500-hour threshold or other applicable tests under § 1.469-5T. The question is factual and investor-specific — not a blanket rule that bars all investors as a matter of law.

On the claim that deductions are denied under the "at-risk" rules:

The article is correct that leveraged, nonrecourse debt structures cannot support deductible losses under 26 U.S.C. § 465. Ferrari Films does not use such structures. The at-risk rules under § 465 limit deductible losses to the amount the taxpayer is genuinely at risk in the activity — including amounts paid or incurred in the production or distribution of the film. When investors contribute actual equity capital that is genuinely at risk, § 465 presents no obstacle. The article improperly conflates abusive, debt-leveraged tax shelter schemes with straightforward equity investments by active LLC members. These are fundamentally different transactions.

On the claim that only the "owner" at time of release may take the deduction, and the original use requirement:

Section 168(k) requires both that the taxpayer place the property "in service" and that the original use of the property begin with the taxpayer — or that the property be acquired under qualifying circumstances. 26 U.S.C. § 168(k). For a production LLC that develops and produces the film from inception, the original use requirement is straightforwardly satisfied. Under 26 U.S.C. § 168(k)(2)(H)(i), a qualified film is considered placed in service at the time of initial release or broadcast, which can include a qualifying public screening. A properly structured LLC that retains sufficient ownership interest at the time the film is placed in service satisfies the statutory requirements. This is a structuring question with workable answers, not an insurmountable bar.

On the tax treatment of film exploitation proceeds:

Proceeds from the sale or exploitation of a film by its owner are taxed as ordinary income, not capital gains. Films held for sale or exploitation in the ordinary course of business are expressly excluded from capital asset treatment under 26 U.S.C. § 1221. This is a critical distinction that any Section 168(k) analysis must address honestly: the deduction is front-loaded in the year the film is placed in service, and income realized on the film's exploitation is recognized at ordinary rates on the back end. This does not eliminate the benefit of Section 168(k) for a materially participating investor — the time value of the deferred tax liability and the ability to deploy that capital in the interim represent real economic value — but investors must model their returns with ordinary income treatment on the back end clearly understood.

On the comparison to fraudulent Section 181 transactions:

Ferrari Films strongly agrees that fraudulent, debt-leveraged tax shelters are illegal and harmful to the industry. Section 181, before its expiration, allowed a deduction for qualified film and television production costs up to $15 million (or $20 million for productions in certain low-income or distressed areas), subject to an election and specific requirements. The abuses that led to widespread IRS challenges under § 181 involved leveraged structures, fictitious debt, and investors with no genuine involvement in production — not equity-based investments by active participants. Section 168(k) is a different provision with different mechanics. Responsible, equity-based investment in an LLC with active investor participation, proper documentation, and a clean ownership structure shares nothing in common with the leveraged schemes the article describes.

On the claim that Section 168(k) provides "at best a short deferral of tax":

For an investor who materially participates and is at risk for the full investment amount, Section 168(k) provides a full deduction in the year the film is placed in service, offsetting active income at ordinary rates. When the film generates returns, those amounts are recognized as ordinary income — but the time value of the deferred tax liability, combined with the ability to redeploy that capital during the interim period, represents a meaningful and legitimate economic benefit. The article's dismissal of this benefit as merely a "short deferral" understates the economics for investors who qualify.

Ferrari Films' Commitment to Compliant, Transparent Film Investment

Ferrari Films structures all investor relationships around equity participation, genuine economic risk, active investor involvement, and meticulous documentation. The company works to ensure full compliance with the Internal Revenue Code, Treasury Regulations, and all applicable IRS guidance.

"We welcome scrutiny of film finance structures," said Ferrari. "What we push back against is a broad-brush dismissal of a legitimate federal tax provision that, properly applied, provides real benefits to investors who are genuinely part of the filmmaking process. That is exactly what we do at Ferrari Films, and we will continue to advocate for accuracy in the legal and financial discourse surrounding independent film."

This press release contains general legal and tax information for discussion purposes only and does not constitute legal or tax advice. Producers and investors should consult qualified legal and tax counsel regarding their specific circumstances.

About Ferrari Films Ferrari Films is a motion picture production and entertainment law practice founded by Stacy Kemp Ferrari and Bastiano Ferrari. The company produces independent film projects and is committed to transparent, compliant, and investor-aligned production financing.

Bastiano Ferrari and Stacy Kemp Ferrari

Bastiano Ferrari and Stacy Kemp Ferrari

DUBAI, United Arab Emirates (AP) — The United States said Monday that it bombed radar and drone sites in Iran after Tehran shot down an American drone over the weekend. Iran then said it targeted American soldiers in Kuwait with missiles, which the U.S. says it shot down.

The nominal ceasefire between Iran and the U.S. has been repeatedly tested with such back-and-forth attacks, even as officials from both countries try to negotiate an end to the war. It’s not clear how close they are to a deal — and there is always the risk that an attack could derail those talks.

In the meantime, Iran has maintained its chokehold on the Strait of Hormuz, disrupting global energy supplies and driving up the price of fuel around the world, with far-reaching consequences. A cargo ship came under attack off Iraq Monday afternoon, the British military said.

Fighting has also escalated between Israel and the Lebanese militant group Hezbollah, despite their nominal ceasefire. Israel has extended its occupation deep into Lebanon, and Hezbollah — which joined the war in support of its main backer, Iran — continues to launch drones into Israel.

The U.S. military’s Central Command said it carried out the strikes in Iran on Saturday and Sunday around the city of Geruk and on Qeshm Island, hitting air defenses, a ground control station and two attack drones it said threatened ships in the region.

“The measured and deliberate strikes occurred ... in response to aggressive Iranian actions that included the shootdown of a U.S. MQ-1 drone that was operating over international waters,” Central Command said.

Traffic through the Strait of Hormuz is at a trickle compared to before the war, with ship owners deterred by the risk of an Iranian attack. Only 36 ships transited the waterway in the seven days leading up to to Friday, a third of them carrying crude oil or petroleum products, according to Lloyd’s List Intelligence. That compares to an average of more than 130 ships per day before the war began.

Kuwait said its air defenses opened fire early Monday morning to intercept incoming drone and missile fire.

Around the same time, Iran’s paramilitary Revolutionary Guard said it responded to an American attack without saying where, likely referring to the attack on Kuwait. In a statement carried by the state-run IRNA news agency, the Guard said that U.S. forces had targeted a telecommunications tower.

Kuwait is home to U.S. Army Central, the Mideast forward command for the Army.

Iranian state television shared footage of the ballistic missile launch, including a close-up showing a sticker on its body depicting a bruised U.S. President Donald Trump overlaid on a “closed” Strait of Hormuz with the caption: “Until the last American soldier leaves the region.”

Central Command said U.S. forces shot down two ballistic missiles Iran launched toward bases home to American troops. No Americans were hurt, it added.

The attacks represent the latest escalation between the U.S. and Iran. Over the weekend, the U.S. fired a missile into the engine room of a Gambia-flagged cargo ship trying to break its blockade of Iranian ports.

On Monday, a cargo ship off Umm Qasr, Iraq, was struck by a projectile that caused a “large explosion,” the British military said. It offered no other details and no one claimed the attack, though Iran previously has attacked ships off Iraq.

A trickle of ships has made it out of the strait, through which a fifth of all traded oil and natural gas once passed, but pressure continues on global energy supplies, as well as on chemical fertilizer. That has led to fears of food shortages. The Gulf region produces 30% of globally traded chemical fertilizers.

Trump met with advisers on Friday but has yet to decide on whether to move ahead with a deal to extend the ceasefire and reopen the strait. Iran has said the deal had not been finalized.

The U.S. and Israel launched the war with strikes on Iran on Feb. 28. Trump has offered shifting goals for the conflict, although preventing Iran from building a nuclear weapon is among them. Iran has insisted its nuclear program is peaceful, though it has enough highly enriched uranium to build several nuclear weapons, should it choose to do so.

U.S. Vice President JD Vance suggested last week that negotiators are trying to strike general terms on Iran’s nuclear program, with the specifics to be hammered out in the ensuing talks.

Iranian Foreign Ministry spokesperson Esmail Baghaei on Monday again accused the U.S. of “constantly” changing its positions.

“From the beginning, we knew — and we continue to know — that we are negotiating in an atmosphere of mistrust," Baghaei told journalists.

Trump expressed optimism about the talks in a post on his Truth Social platform early Monday in Washington.

“Iran really wants to make a deal, and it will be a good one for the U.S.A. and those that are with us,” he wrote. “Just sit back and relax, it will all work out well in the end — It always does!”

Demonstrators wave Iranian flags and flags of Lebanon's militant Hezbollah group during a pro-government gathering at Islamic Revolution Square in Tehran, Iran, Saturday, May 30, 2026. (AP Photo/Vahid Salemi)