Structure
Cast and crew of "Supernatural"
At its very core, CAIC is simply a way to provide a salary bonus that purchases insurance benefits for cast and crew members. Under U.S. state theatrical tax credit rules for qualified expenditures, CAIC is reimbursable as a labor cost, fringe and/or insurance benefit. As long as the premium payments are not creating a capital asset for the producers or studios, these qualified expenditures are deductible and reimbursable by tax incentives in the U.S.A.
1). Life and health (fringe) benefits are paid as a 162 Bonus directly to families of cast and crew members, who then voluntarily chose to purchase life insurance and submit to a REBA that will only be released at a future date, should their work product become profitable. The life insurance stays in force, and because the bonus is a taxable salary component to the cast or crewmember, they are liable for the income tax. However, if the project is grandfathered under IRC 181, the amount of 162 Bonus that invests in the film or television project's life and health benefit costs, is 100% deductible to the crewmember who has just taken that personal income bonus, and reinvested it into a 181 qualified, fully deductible investment which they happen to be employed to help create.
2). Life and health policies are not owned by producers, studios, networks, banks or owners of the media projects (CLICK HERE FOR MORE), and are owned outright by the cast and crew members themselves.
Furthermore, CAIC policies are considered "property" by state and federal statutes, and can be used as collateral (just like a bank savings or checking account). They accrue tax-free, causing no annual interest earnings on corporate balance sheets which may otherwise incur unwanted federal or state tax liabilities. CAIC is truly a tax-advantaged asset class.
Additional background on Viability and Deductibility of CAIC in financial transactions
In order for the CAIC premiums to be deductible, policies (L&H) may not be owned by banks, studios or producers (i.e., and the beneficiaries are always the worker's families, heirs, estates or living trusts). Benefits may not be paid to studios, investors, banks or producers for production stop loss, loan collateral or as essential element coverage, for this would invalidate the use of CAIC’s deductibility and U.S. state tax credit incentive reimbursements. CAIC policies may also not be used for buy-sell purposes. For information on the deducibility of CAIC, please review tax codes (CLICK HERE FOR MORE):
Because the 162 Bonus has no specific complexities or other elements that fall outside current federal or state tax codes, the plan is not conceptually different than other simple employee insurance benefits. Nor is the proprietary CAIC structure a true non-qualified deferred compensation (NQDC) plan, because no systematic withdrawals are intended or expected.
The simplicity of the CAIC structure allows producers to pay premium costs as a salary bonus, and cast/crew to deduct insurance costs individually, thus allowing both parties to apply for reimbursement by state film tax credits, while keeping the capital asset off balance sheet. The entire transaction is non-taxable for investor’s tax purposes. Moreover, each year, huge cash values and interest earnings accumulate inside CAIC policies owned by the hard-working cast and crew members, who have a vested interest in making projects profitable.
Note: CAIC is not part of Universal Commercial Code (UCC), for means of perfection but can be collaterally controlled for investor and bank future security when used as collateral.
1). Life and health (fringe) benefits are paid as a 162 Bonus directly to families of cast and crew members, who then voluntarily chose to purchase life insurance and submit to a REBA that will only be released at a future date, should their work product become profitable. The life insurance stays in force, and because the bonus is a taxable salary component to the cast or crewmember, they are liable for the income tax. However, if the project is grandfathered under IRC 181, the amount of 162 Bonus that invests in the film or television project's life and health benefit costs, is 100% deductible to the crewmember who has just taken that personal income bonus, and reinvested it into a 181 qualified, fully deductible investment which they happen to be employed to help create.
2). Life and health policies are not owned by producers, studios, networks, banks or owners of the media projects (CLICK HERE FOR MORE), and are owned outright by the cast and crew members themselves.
Furthermore, CAIC policies are considered "property" by state and federal statutes, and can be used as collateral (just like a bank savings or checking account). They accrue tax-free, causing no annual interest earnings on corporate balance sheets which may otherwise incur unwanted federal or state tax liabilities. CAIC is truly a tax-advantaged asset class.
Additional background on Viability and Deductibility of CAIC in financial transactions
In order for the CAIC premiums to be deductible, policies (L&H) may not be owned by banks, studios or producers (i.e., and the beneficiaries are always the worker's families, heirs, estates or living trusts). Benefits may not be paid to studios, investors, banks or producers for production stop loss, loan collateral or as essential element coverage, for this would invalidate the use of CAIC’s deductibility and U.S. state tax credit incentive reimbursements. CAIC policies may also not be used for buy-sell purposes. For information on the deducibility of CAIC, please review tax codes (CLICK HERE FOR MORE):
Because the 162 Bonus has no specific complexities or other elements that fall outside current federal or state tax codes, the plan is not conceptually different than other simple employee insurance benefits. Nor is the proprietary CAIC structure a true non-qualified deferred compensation (NQDC) plan, because no systematic withdrawals are intended or expected.
The simplicity of the CAIC structure allows producers to pay premium costs as a salary bonus, and cast/crew to deduct insurance costs individually, thus allowing both parties to apply for reimbursement by state film tax credits, while keeping the capital asset off balance sheet. The entire transaction is non-taxable for investor’s tax purposes. Moreover, each year, huge cash values and interest earnings accumulate inside CAIC policies owned by the hard-working cast and crew members, who have a vested interest in making projects profitable.
Note: CAIC is not part of Universal Commercial Code (UCC), for means of perfection but can be collaterally controlled for investor and bank future security when used as collateral.
In 1911, Justice Oliver Wendell Holmes Jr. delivered the findings of the Supreme Court on
the essential issues at the heart of the opinion concerning CAIC as a form of collateral:
Further reading on IRS REGs for CAIC used as collateral and deduction of CAIC costs
Life insurance coverage
A company may deduct the cost of life insurance coverage on the owner, an employee, or any person with a financial interest in the business, as long as the company is not directly or indirectly the beneficiary of the policy. See Regulations section 1.264-1 for more information.
Welfare benefit funds A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. 1). The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. 2). The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations.
Loans or Advances
You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. However, if the employee performs no services, treat the amount you advanced as a loan. If the employee does not repay the loan, treat it as income to the employee. On certain "below-market interest rate" loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest.
Life insurance coverage
A company may deduct the cost of life insurance coverage on the owner, an employee, or any person with a financial interest in the business, as long as the company is not directly or indirectly the beneficiary of the policy. See Regulations section 1.264-1 for more information.
Welfare benefit funds A welfare benefit fund is a funded plan (or a funded arrangement having the effect of a plan) that provides welfare benefits to your employees, independent contractors, or their beneficiaries. Welfare benefits are any benefits other than deferred compensation or transfers of restricted property. Your deduction for contributions to a welfare benefit fund is limited to the fund's qualified cost for the tax year. If your contributions to the fund are more than its qualified cost, carry the excess over to the next tax year. Generally, the fund's “qualified cost” is the total of the following amounts, reduced by the after-tax income of the fund. 1). The cost you would have been able to deduct using the cash method of accounting if you had paid for the benefits directly. 2). The contributions added to a reserve account that are needed to fund claims incurred but not paid as of the end of the year. These claims can be for supplemental unemployment benefits, severance pay, or disability, medical, or life insurance benefits. For more information, see sections 419(c) and 419A of the Internal Revenue Code and the related regulations.
Loans or Advances
You generally can deduct as wages an advance you make to an employee for services performed if you do not expect the employee to repay the advance. However, if the employee performs no services, treat the amount you advanced as a loan. If the employee does not repay the loan, treat it as income to the employee. On certain "below-market interest rate" loans you make to an employee or shareholder, you are treated as having received interest income and as having paid compensation or dividends equal to that interest.
Further reading on UCC and means of perfection for bank loans
It was often baffling to try to maintain a technically valid security interest when bank financing a manufacturing process, where the collateral starts out as 1). raw materials, becomes 2). a work in process and ends as 3). finished goods. For instance, a security interest can be taken in many kinds of intangible property such as television or motion picture rights which have come to be an important source of commercial collateral. UCC §9-109(8) states that revised Article 9 does not apply to a transfer of an interest in or an assignment of a claim under a policy of insurance (other than an assignment by or to a health-care provider of health-care-insurance receivables). Therefore, no UCC filings are necessary. Instead, a bank should enter into a three party agreement with its customer and the insurance company wherein the interest of the bank is recognized. Most life insurance companies have an approved form. This is based on Revised Article 9 of the model Uniform Commercial Code and will be subject to state variations. (CLICK HERE FOR MORE)
It was often baffling to try to maintain a technically valid security interest when bank financing a manufacturing process, where the collateral starts out as 1). raw materials, becomes 2). a work in process and ends as 3). finished goods. For instance, a security interest can be taken in many kinds of intangible property such as television or motion picture rights which have come to be an important source of commercial collateral. UCC §9-109(8) states that revised Article 9 does not apply to a transfer of an interest in or an assignment of a claim under a policy of insurance (other than an assignment by or to a health-care provider of health-care-insurance receivables). Therefore, no UCC filings are necessary. Instead, a bank should enter into a three party agreement with its customer and the insurance company wherein the interest of the bank is recognized. Most life insurance companies have an approved form. This is based on Revised Article 9 of the model Uniform Commercial Code and will be subject to state variations. (CLICK HERE FOR MORE)
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