4 ms·

The line is at claiming a loss for tax purposes. Destroy the film if you like, but then you get no tax break. There's a similarity with the "hobby loss rule".

by imgabe 3y ago

The line is at claiming a loss for tax purposes. Destroy the film if you like, but then you get no tax break. There's a similarity with the "hobby loss rule". In order to be a valid business who can deduct business expenses like losses, you have to demonstrate that you have a "profit intent". That means that you make at least an attempt to turn a profit on your work. If you don't, it's considered a hobby and you don't get to deduct any expenses. If Warner Bros is going to make movies just to delete them without even trying to sell them, that sounds like they're just indulging in a movie-making hobby rather than being in the movie business.

s1artibartfast 3y ago
Warner Brothers has not only intent, but a demonstrated profit margin, which they are deducting the movie from. Why shouldn't they be able to deduct there very real losses.
- imgabe 3y ago
  They're not real losses. They could sell the movie. They could release it. They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss. Ultimately we write tax policy for the benefit of society, not for Warner Bros. In theory, we could write tax law so that it made financial sense for a factory to produce widgets and send them directly into an incinerator, because they could claim this as a "loss" and offset profits from other activities. But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor). We could use those resources to do something more productive and tax laws should encourage companies to do productive things that improve the world, not spin their wheels for imaginary losses. If you deliberately burn down your house and try to collect insurance on it, we call that insurance fraud. If you deliberately destroy your product and try to claim a tax loss on it, that should be fraud too.
  - s1artibartfast 3y ago
    >They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss. That is exactly how it works. You already spent X on an asset. If you throw the asset away, then you just have deductible expenses. Same for the widget factory. You can deduct the material and factory expense of making of making defective widgets. If you trash them, you write down the value of your assets. >But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor). This is the crux of things. Those arent society's resources, and never were. They are resources of the warner Bros and the widget factory. Tax law isnt and shouldn't be about forcing people to do what you want. If someone wants to waste their time and resources, that is their choice. It seems like this whole thread is people angry that they dont own the property of others, and get to control them.
    - imgabe 3y ago
      Nobody is stopping them from wasting their time and resources. They are free to waste them as much as they want. It's just not a tax-deductible business expense to do so. There is a difference between "we won't allow you to do something" vs. "we won't subsidize you to do something". It's one thing to want to waste your resources, it's another thing to demand that everyone else pay you to do so. What's to stop the CEO from building a mansion with the company's resources and selling it to himself for $1? Then having the company write it off as a loss? Oops! It was just a bad business decision and the company lost money. Oh well! We can't stop them from wasting their resources if they want to!
      - s1artibartfast 3y ago
        Fundamental to the whole premise of taxes is that they are applied to net profit. If a company spends $1 to make $10, they get taxed on $9. If they spend $8 to make $10, they get taxed on $2. Nobody is giving warner bros money. They arent getting a cash tax refund. They just spent more money and made less profit. If they wanted to make zero profit, and pay zero taxes, that is their choice! If a commpany wants to sell houses at a loss, that is legal, and happens all the time. If they are self dealing, the shareholders could have an issue with it, or the IRS if the CEO doesn't report it. Guess what, Companies DO give CEOs many millions of dollars of salary and stock. Every bit of that is tax deductible expense for the company. >Oh well! We can't stop them from wasting their resources if they want to! It is literally none of your business because they aren't your resources! It is like complaining your neighbors have fun on Sunday instead of working and paying more taxes.
_giorgio_ 3y ago
They can't decide that the value is zero if they got public offers from Amazon, Netflix etc It's clear that the loophole is to ask Amazon and Netflix to make a secret offer. Public auction is the solution if they do it for tax reasons and not for artistic integrity.
- imgabe 3y ago
  I like that idea. Hold an auction. If they still want to delete it, then the maximum deduction is (expenses - highest_bid), since clearly the studio is getting some value out of not releasing the film.
konschubert 3y ago
I don’t get your point. If you run a business, money that you spend is subtracted from your earnings. Are you alleging that they made the money for fun? That they never intended to release it? That’s they spent 10 dollars to save 3 dollars in taxes? And then you pay taxes on earnings. That’s not cheating and it makes a lot of sense if you think about it.
- hyperhopper 3y ago
  > That’s they spent 10 dollars to save 3 dollars in taxes? Yes, exactly. You're forgetting Hollywood accounting. Spending 1 dollars to somebody, 9 dollars to your other companies and saving 3 dollars later is netting you 2 dollars.
  - konschubert 3y ago
    Well, those other companies paid taxes as well. Plus you can only save taxes if you’re paying taxes in the first place. A company that only loses money isn’t going to get paid. I’m not sure that scheme works work out another trick.
    - hyperhopper 3y ago
      > Well, those other companies paid taxes as well. How do you know? At this scale tax avoidance schemes often completely prevent this.
    - DannyBee 3y ago
      "Well, those other companies paid taxes as well." This is a bad assumption. Those other companies are often either incorporated in tax havens, or they have a ton of companies with various forms of tax breaks/incentives. So where I live, for example, they get transferrable Georgia tax credits during the making of the film. Doesn't matter if you lose money, go bankrupt, etc. It's based on expenses. Because they are transferrable, they sell the tax credits (They sell for 80-90 cents on the dollar, so buying them lowers the cost of paying your taxes). So to your middle point, they can in fact, pay no taxes but end up with plenty of tax credits to sell. Before you ask, earning state tax credits is not federally taxable - it is treated as a reduction in your state tax liability, not as income to the companies that earn them. (It's a bit more complex than that, but ...)

by imgabe 3y ago

s1artibartfast 3y ago

Warner Brothers has not only intent, but a demonstrated profit margin, which they are deducting the movie from. Why shouldn't they be able to deduct there very real losses.

imgabe 3y ago
They're not real losses. They could sell the movie. They could release it. They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss. Ultimately we write tax policy for the benefit of society, not for Warner Bros. In theory, we could write tax law so that it made financial sense for a factory to produce widgets and send them directly into an incinerator, because they could claim this as a "loss" and offset profits from other activities. But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor). We could use those resources to do something more productive and tax laws should encourage companies to do productive things that improve the world, not spin their wheels for imaginary losses. If you deliberately burn down your house and try to collect insurance on it, we call that insurance fraud. If you deliberately destroy your product and try to claim a tax loss on it, that should be fraud too.
- s1artibartfast 3y ago
  >They're deliberately forgoing those options and deleting it. You don't have a loss until you attempt to generate revenue and find that the revenue is less than your expenses. If you just throw your product away, that's not a loss. That is exactly how it works. You already spent X on an asset. If you throw the asset away, then you just have deductible expenses. Same for the widget factory. You can deduct the material and factory expense of making of making defective widgets. If you trash them, you write down the value of your assets. >But we shouldn't have a tax law that does that, because that's a huge waste of society's resources (materials for the widgets, fuel for the incinerator, people's time and labor). This is the crux of things. Those arent society's resources, and never were. They are resources of the warner Bros and the widget factory. Tax law isnt and shouldn't be about forcing people to do what you want. If someone wants to waste their time and resources, that is their choice. It seems like this whole thread is people angry that they dont own the property of others, and get to control them.
  - imgabe 3y ago
    Nobody is stopping them from wasting their time and resources. They are free to waste them as much as they want. It's just not a tax-deductible business expense to do so. There is a difference between "we won't allow you to do something" vs. "we won't subsidize you to do something". It's one thing to want to waste your resources, it's another thing to demand that everyone else pay you to do so. What's to stop the CEO from building a mansion with the company's resources and selling it to himself for $1? Then having the company write it off as a loss? Oops! It was just a bad business decision and the company lost money. Oh well! We can't stop them from wasting their resources if they want to!
    - s1artibartfast 3y ago
      Fundamental to the whole premise of taxes is that they are applied to net profit. If a company spends $1 to make $10, they get taxed on $9. If they spend $8 to make $10, they get taxed on $2. Nobody is giving warner bros money. They arent getting a cash tax refund. They just spent more money and made less profit. If they wanted to make zero profit, and pay zero taxes, that is their choice! If a commpany wants to sell houses at a loss, that is legal, and happens all the time. If they are self dealing, the shareholders could have an issue with it, or the IRS if the CEO doesn't report it. Guess what, Companies DO give CEOs many millions of dollars of salary and stock. Every bit of that is tax deductible expense for the company. >Oh well! We can't stop them from wasting their resources if they want to! It is literally none of your business because they aren't your resources! It is like complaining your neighbors have fun on Sunday instead of working and paying more taxes.

_giorgio_ 3y ago

They can't decide that the value is zero if they got public offers from Amazon, Netflix etc It's clear that the loophole is to ask Amazon and Netflix to make a secret offer. Public auction is the solution if they do it for tax reasons and not for artistic integrity.

imgabe 3y ago
I like that idea. Hold an auction. If they still want to delete it, then the maximum deduction is (expenses - highest_bid), since clearly the studio is getting some value out of not releasing the film.

konschubert 3y ago

I don’t get your point. If you run a business, money that you spend is subtracted from your earnings. Are you alleging that they made the money for fun? That they never intended to release it? That’s they spent 10 dollars to save 3 dollars in taxes? And then you pay taxes on earnings. That’s not cheating and it makes a lot of sense if you think about it.

hyperhopper 3y ago
> That’s they spent 10 dollars to save 3 dollars in taxes? Yes, exactly. You're forgetting Hollywood accounting. Spending 1 dollars to somebody, 9 dollars to your other companies and saving 3 dollars later is netting you 2 dollars.
- konschubert 3y ago
  Well, those other companies paid taxes as well. Plus you can only save taxes if you’re paying taxes in the first place. A company that only loses money isn’t going to get paid. I’m not sure that scheme works work out another trick.
  - hyperhopper 3y ago
    > Well, those other companies paid taxes as well. How do you know? At this scale tax avoidance schemes often completely prevent this.
  - DannyBee 3y ago
    "Well, those other companies paid taxes as well." This is a bad assumption. Those other companies are often either incorporated in tax havens, or they have a ton of companies with various forms of tax breaks/incentives. So where I live, for example, they get transferrable Georgia tax credits during the making of the film. Doesn't matter if you lose money, go bankrupt, etc. It's based on expenses. Because they are transferrable, they sell the tax credits (They sell for 80-90 cents on the dollar, so buying them lowers the cost of paying your taxes). So to your middle point, they can in fact, pay no taxes but end up with plenty of tax credits to sell. Before you ask, earning state tax credits is not federally taxable - it is treated as a reduction in your state tax liability, not as income to the companies that earn them. (It's a bit more complex than that, but ...)