Film Accounting Glossary
Tax credit audit
What is a tax credit audit?
Also called incentive audit, or qualifying spend audit.
A tax credit audit is the jurisdiction's examination of a production's claimed qualifying spend, typically performed by an approved accounting firm at the production's expense before the credit is issued.
Auditors test invoices, proof of payment, residency documentation, vendor location, and the coding that separated qualified from non-qualified cost. Disallowances almost always trace to missing documentation rather than to disputed rules, which is why the audit trail is built during the shoot rather than after.
Example
The auditor samples 120 transactions and disallows $46,000: four out-of-state purchases, a vendor with no in-state presence, two residency files with no documentation, and $9,000 of petty cash with missing receipts. Every disallowance is documentation, not a dispute about the rules.
Figures are illustrative, chosen to show the mechanics rather than to quote market rates.
Where you'll see it
Performed by a jurisdiction-approved firm at the production's expense, before the credit is issued.
Common mistake
Preparing for the audit after wrap. Disallowances are almost always missing documentation, and the documentation has to be gathered while the shoot is running.
Related questions
- Who performs a film tax credit audit?
- A firm approved by the jurisdiction, engaged at the production's expense, testing claimed spend before the credit is issued.
- What causes tax credit disallowances?
- Missing invoices or proof of payment, undocumented residency, out-of-jurisdiction vendors, and unreconciled petty cash, rather than disputes about the rules.