# “Creative” Hollywood accounting: Why no IRS crackdown? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [May 29, 2014, 4:34pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568 "2014-05-29T16:34:23Z")\ **Posts on this page:** 11\ **Page:** 2
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [May 30, 2014, 4:09pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/21 "2014-05-30T16:09:26Z")
> [@Ranger\_Jeff](#): > > I’m thinking the idea is to get Gross Points, not Net Points. “My agent is a genius! I got net points on _Grosse Pointe Blank_, and gross points on _The Net_!” ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [May 30, 2014, 4:21pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/22 "2014-05-30T16:21:45Z")
> [@Dangerosa](#): > > MANY businesses, perhaps most publicly traded businesses, keep - perfectly legally - at least two sets of books - one for tax purposes that follows tax law - and one for GAAP. GAAP is slightly different accounting that tax and there are things you MUST do for tax that you don’t need to do for GAAP (depreciation schedules are a big one - or used to be, its been a long time since I did tax - with GAAP, you get some leeway in choosing, with Tax, its what the IRS tells you it is). On top of that, its possible that they’ll keep another set of books for internal reporting. If I’m a film company - its that third set of books that is the creative set that I use to pay percentage of profits out of. Yes, that’s all correct. In fact, companies that are large enough attach schedules to their tax return filings that explain the difference between the books (GAAP, usually, though IFRS is now allowed by the SEC) and the tax return. ---
**Author:** ![Pixel\_Dent](https://avatars.discourse-cdn.com/v4/letter/p/bc8723/32.png) [@Pixel\_Dent](https://boards.straightdope.com/u/Pixel_Dent)\ **Post date:** [May 30, 2014, 4:55pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/23 "2014-05-30T16:55:47Z")
> [@Great\_Antibob](#): > > In the US, we don’t have corporate profit tax. We have corporate income tax. Sure, some deductions are allowed, but certainly not all operating expenses. I think your post gives an incorrect impression that in the US few expenses can be deducted from a corporation’s income to establish a base for taxes. The fact is that almost all expenses can be deducted with a few specific exceptions. ---
**Author:** ![robert\_columbia](https://avatars.discourse-cdn.com/v4/letter/r/e79b87/32.png) [@robert\_columbia](https://boards.straightdope.com/u/robert_columbia)\ **Post date:** [May 31, 2014, 7:38pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/24 "2014-05-31T19:38:50Z")
> [@Ranger\_Jeff](#): > > I understand Star Wars: A New Hope hasn’t shown a Net Profit. I’m thinking the idea is to get Gross Points, not Net Points. These aren’t the points you’re looking for. Move along. ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [May 31, 2014, 8:39pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/25 "2014-05-31T20:39:41Z")
Well considering creative accounting has been an open secret for decades among most everyone, any actor who settles for net points is either in such a weak bargaining position that that’s all he or she can get, or they’re fools, and nowadays a fool and his money don’t even get to meet and shake hands. ---
**Author:** ![Spiff](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/spiff/32/9852_2.png) [@Spiff](https://boards.straightdope.com/u/Spiff)\ **Post date:** [June 2, 2014, 1:35pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/26 "2014-06-02T13:35:28Z")
Thanks for all the insights, everyone. ---
**Author:** ![Zebra](https://avatars.discourse-cdn.com/v4/letter/z/c0e974/32.png) [@Zebra](https://boards.straightdope.com/u/Zebra)\ **Post date:** [June 2, 2014, 1:41pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/27 "2014-06-02T13:41:56Z")
But you should remember that most studios (I think all of them) are part of publicly traded companies. As such, investors like to see that they are profitable. So really, they do show profits on movies. Probably most of the time. ---
**Author:** ![Amateur\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/a/59ef9b/32.png) [@Amateur\_Barbarian](https://boards.straightdope.com/u/Amateur_Barbarian)\ **Post date:** [June 2, 2014, 2:05pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/28 "2014-06-02T14:05:13Z")
> [@GrandWino](#): > > It’s mostly used to screw over the people that get a share of the profit. The guy that played Biff in\*\*\* Back to the Future\*\*\* claims to have never received a penny in royalties from those films because on paper they “lost money.” Joe Straczynski says he’s never received a dime for _Babylon 5_ beyond his writing and directing salaries, because WB wrote off all kinds of things - including failed movies shot on other continents - against the revenues. Cases like Donald Sutherland and _Animal House_ are rare. Everyone in the industry gets as much as they can up front and doesn’t let points sway them. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [June 2, 2014, 2:14pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/29 "2014-06-02T14:14:53Z")
> [@dzeiger](#): > > This actually might make a lot of sense in terms of internal financials–if the same company owns both the movie studio and the TV network, you still might want to keep track of commercial time you’re “buying.” But it can cause problems when you try and use your internal accounting practices for anything external. This is often called transfer pricing, and is very important for businesses that have divisions supporting other divisions. My company has a hardware manufacturing arm and a maintenance arm. Maintenance provides the technical support during warranty periods, and charges back to Manufacturing, so that both lines of business have financials that accurately match up cost to the revenues that are supported by the cost. Manufacturing gets the revenue for the product sale (including warranty), so Manufacturing should get the cost as well, but they don’t need to set up a warranty business separate from the Maintenance people. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [June 2, 2014, 9:10pm UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/30 "2014-06-02T21:10:58Z")
There is a difference in tax accounting and GAAP accounting. Most companies account for their income both ways. Further, as mentioned earlier, the specific terms of these contracts may specify some accounting methodology other than GAAP accounting. Additionally, a big issue on these types of contracts is that they are manipulating the income statement by not treating transactions with affiliates on an arms length basis. ---
**Author:** ![epbrown01](https://avatars.discourse-cdn.com/v4/letter/e/7ba0ec/32.png) [@epbrown01](https://boards.straightdope.com/u/epbrown01)\ **Post date:** [June 3, 2014, 1:19am UTC](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568/31 "2014-06-03T01:19:29Z")
> [@Acsenray](#): > > Everyone, including the agents, are perfectly aware of what any particular actor’s negotiating strength is. These ARE the best deals they can get. Note that most Hollywood productions have to pay wages according to union contracts, so the actors get at least “scale” in cash. This. Winston Groom went on about getting screwed on _Forrest Gump_ but it wasn’t the studio that did it, it was his agent who didn’t make it clear to him that he didn’t have the clout to get points of the gross like Tom Hanks. [Previous page](https://boards.straightdope.com/t/creative-hollywood-accounting-why-no-irs-crackdown/689568.md?page=1)