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> whatever creative accounting they want to do still needs to ultimately satisfy IRS scrutiny if there's an audit. Well, yes, but avoiding taxes is not the poi

> whatever creative accounting they want to do still needs to ultimately satisfy IRS scrutiny if there's an audit. Well, yes, but avoiding taxes is not the point of "Hollywood Accounting", rather avoiding paying actors. The IRS can collect taxes from whichever business entity makes a profit, but, critically, actors cannot. They signed a deal with one entity, and are only payed a share of net profits if that one particular entity makes a profit. Hollywood Accounting, then, is the process of shifting costs around so that the legal entity responsible for paying the actors never makes a profit. The SPVs never own anything and never have any expertise in anything. So they have to pay the parent company for a wide range of services, from advertising and marketing to distribution to prop and equipment rental. That makes it easy to shift costs into the SPV as necessary.

jasode 1mo ago
>Well, yes, but avoiding taxes is not the point of "Hollywood Accounting", rather avoiding paying actors. I wasn't saying avoiding taxes was the purpose. Instead, I'm saying whatever "bogus" or "inflated" expenses that the production company LLC is charging to the movie LLC still has to be somewhat plausible. A simplistic example of what they can't do: - Tom Cruise TC Productions LLC sends an invoice to MissionImpossible8 movie LLC with a single line item that says "script advisory service for $1 billion dollars" which then conveniently causes the movie's balance sheet to be negative $1 billion dollars and thus never make a profit. The point is the production LLC, the distributor entities, etc all charging the movie LLC so that it shows zero profits ... still need to play their financial accounting games with more sophistication than that. Yes, go ahead and fabricate various costs to avoid paying actors on "net profit points" but it still needs a veneer of plausibility. Otherwise, the IRS comeback will be, "Is the $1 billion fee the real market rate for script advisory services? Do you have evidence of that amount ever being paid? etc etc"

jasode 1mo ago

>Well, yes, but avoiding taxes is not the point of "Hollywood Accounting", rather avoiding paying actors. I wasn't saying avoiding taxes was the purpose. Instead, I'm saying whatever "bogus" or "inflated" expenses that the production company LLC is charging to the movie LLC still has to be somewhat plausible. A simplistic example of what they can't do: - Tom Cruise TC Productions LLC sends an invoice to MissionImpossible8 movie LLC with a single line item that says "script advisory service for $1 billion dollars" which then conveniently causes the movie's balance sheet to be negative $1 billion dollars and thus never make a profit. The point is the production LLC, the distributor entities, etc all charging the movie LLC so that it shows zero profits ... still need to play their financial accounting games with more sophistication than that. Yes, go ahead and fabricate various costs to avoid paying actors on "net profit points" but it still needs a veneer of plausibility. Otherwise, the IRS comeback will be, "Is the $1 billion fee the real market rate for script advisory services? Do you have evidence of that amount ever being paid? etc etc"