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TITLE 26-INTERNAL REVENUE CODE ily topical or is otherwise essentially transi- tory in nature. (C) Ownership interest For purposes of this subsection, a person's "ownership interest" In a qualified film shall be determined on the basis of his pro- portionate share of any loss which may be incurred with respect to the production costs of such film. (2) Applicable percentage to be 66% Except as provided In paragraph (3), the ap- plicable percentage under section 46(c)(2) for any qualified film shall be 66% percent. (3) Election of 90-percent rule (A) In general If the taxpayer makes an election under this paragraph, the applicable percentage under section 46(c)(2) shall be determined as if the useful life of the film would have expired at the close of the first taxable year by the close of which the aggregate amount allowable as a deduction under section 167 would equal or exceed 90 percent of the basis of the film. (B) Making of election An election under this paragraph shall be made at such time and in such manner as the Secretary may by regulations prescribe. Such an election shall apply for the taxable year for which it is made and for all subse- quent taxable years and may be revoked only with the consent of the Secretary. (C) Who may elect If for any prior taxable year paragraph (2) of this subsection applied to the taxpay- er or any related business entity, or if for the taxable year paragraph (2) applies to any related business entity, an election under this paragraph may be made by the taxpayer only with the consent of the Sec- retary. (D) Related business entity Two or more corporations, partnerships, trusts, estates, proprietorships, or other en- tities shall be treated as related business en- tities if 50 percent or more of the beneficial interest in each of such entities is owned by the same or related persons (taking into ac- count only persons who own at least 10 per- cent of such beneficial interest). For pur- poses of this subparagraph, a person is a re- lated person to another person if- (i) such persons are component mem- bers of a controlled group of corporations (within the meaning of section 1563(a), except that section 1563(b)(2) shall not apply and except that "more than 50 per- cent" shall be substituted for "at least 80 percent" each place it appears in section 1563(a)), or (ii) the relationship between such per- sons would result in a disallowance of losses under section 267 or 707(b), except that for these purposes a family of an in- dividual includes only his spouse and minor children. For purposes of this subparagraph, the term "beneficial interest" means voting stock in the case of a corporation, profits in- terest or capital interest in the case of a partnership, or beneficial interest in the case of a trust or estate. (4) Predominant use test; qualified investment In the case of any qualified film- (A) section 48(a)(2) shall not apply, and (B) in determining qualified investment under section 46(c)(1), there shall be issued (in lieu of the basis of the property) an amount equal to the qualified United States production costs (as defined In paragraph (5)). (5) Qualified United States production costs (A) In general For purposes of this subsection, the term "qualified United States production costs" means with respect to any film- (1) direct production costs allocable to the United States, plus (1i) if 80 percent or more of the direct production costs are allocable to the United States, all other production costs other than direct production costs alloca- ble outside the United States. (B) Production costs For purposes of this subsection, the term "production costs" Includes- (1) a reasonable allocation of general overhead costs, (ii) compensation (other than participa- tions described in clause (vi)) for services performed by actors, production person- nel, directors, and producers, (iII) costs of "first" distribution of prints, (iv) the cost of the screen rights and other Material being filmed, (v) "residuals" payable under contracts with labor organizations, and (vi) participations payable as compensa- tion to actors, production personnel, di- rectors, and producers. Participations in all qualified films placed in service by a taxpayer during a taxable year shall be taken into account under clause (vi) only to the extent of the lesser of 25 percent of each such participation or 12/2 percent of the aggregate qualified United States production costs (other than costs described in clauses (v) and (vi) of this subparagraph) for such films, but taking into account for both the 25 percent limit and 121/2 percent limit no more than $1,000,000 in participations for any one indi- vidual with respect to any one film. For purposes of this subparagraph (other than clauses (v) and (vi) and the preceding sen- tence), costs shall be taken into account only if they are capitalized. (C) Direct production costs For purposes of this paragraph, the term "direct production costs" does not include items referred to in clause (1), (iv), (v),.or (vi) of subparagraph (B). The term also does not include advertising and promotion- al costs and such other costs as may be pro- vided in regulations prescribed by the Sec- retary. Page 75