In a thread about King Kong’s box office grosses, this fact was brought forth:
There have been many other allegations in the press that movies studios use some very creative accounting to define obviously successful properties and big losses. I’m sure at least a part of this is tax issues – lower profits=lower taxes.
But I have to suspect that the IRS takes a dim view of such creative accounting, yet I’ve never heard of studios getting audited. It SOUNDS like all the movie studios need a permanent team of auditors.
What’s more, and what makes this a Great Debates topic, other firms have take4n to using creative accounting and exotic financial management to avoid taxes entirely, as described in Perfectly Legal.
So, when our conservative friends decry the heavy oppression of taxes on the wealthy, and demand relief for them, please remember, that many wealthy corporations and people pay no taxes at all. Apparently, creative accounting rules all. Why doens’t the IRS do something about it? Follow the money … er, campaign contributions, would be my guess.
I would think that Sarbanes Oxley would rear its ugly head with stuff like this. Though, it may just regulate overall revenue and profit reported, not inter-divisional splits of it. I would be very surprised if they could invent loss after loss to stop paying taxes. One of the things about accounting is that the dollars never really disappear, you can amortize them, but they always come back at some point.
The issue, IIRC, wasn’t whether the property earned a “profit” as defined by US tax law, but whether it earned a “profit” as defined by the agreement signed between the creators of “Frasier” and Universal(?).
The IRS cares very deeply about the former. About the latter, it doesn’t give a shiite, as long as it gets its share.
Sorry, I can’t speak for others, but I decry the heavy oppression of taxes on everyone, not just the wealthy. I also think it should be a flat tax so that everyone knows how much of every extra dollar they earn they get to keep.
I think what they’re doing is charging the expenses of unsuccessful films/TV show against successful ones. Here’s a quote from the creator of Babylon 5 about how they handled the finances of his show:
A flat tax is by nature weighted against the poor: 10 percent of a poor man’s salary cuts into food money, 10 percent of a wealthy man’s salary cuts into investment money – the level of pain differs greatly. Also, typically a flat tax is conceived of as only applying to wages, whereas the really wealthy generally get most of their income from sources other than wages, hence would pay much less than 10 percent of your income. Still, if you could have cutoff for the very poor and mechanisms for taxing ALL of the wealthy’s income, you might have something there.
This would not affect their overall profits/taxes though. If two shows together earned $1M, then pushing costs from the break even show to the profitable show will leave the total at $1M, just switch which show earned it.
I think the new accounting laws only deal with the overall, not the details of what project earned what. In my company, the interdivisonal split is important because it will signify product vs. service. Products get revenue immediately, services over time, Sarbanes Oxley is tough on revenue recognition issues. But, between product lines I don’t believe the rules are very tough.
I think these studio shenanigans are really contract issues. I’ve heard about them forever, so much so that I am surprised that anybody accepts a % of net instead of a % of gross. I’m also surprised that there haven’t been more successful fraud suits over this issue to discourage the practice.
Insisting upon the former introduces extra complication for no good reason – as you said yourself, the small amount of money that differentiates the two just doesn’t matter very much to a rich person. Better to let Bill Gates have the same “first X dollars tax free” as everybody else than to induce a perverse incentive somewhere on the economic ladder by having a “phaseout zone” where you pay more than both poorer and richer taxpayers.
