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Comment by imgabe | Hacker News Reader

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.

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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.

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.

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.

> 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.

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.

> Well, those other companies paid taxes as well.

How do you know? At this scale tax avoidance schemes often completely prevent this.

"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 ...)

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.

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.

>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.

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!

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.

> 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.

Yes, the key word there is net profit, and the ways to calculate net profit for tax purposes are prescribed by law. Not every single penny a company spends is automatically a deductible business expense. Some things are, some things partially are, some have to be amortized over time, some are not deductible at all. There's thousands of pages of tax law delineating this and it is not in the slightest without precedent to declare a particular expense non-deductible.

So there is a moral argument for what an ideal world should be like, and legal argument for what the rules are.

From the moral perspective, it is clear that WB clearly had real expenses. They spent money, bought rights, and tons of workers were paid good money.

Now you pivot to the legal argument. The current law clearly supports what Warner Bros is doing, so that doesnt help you either.

like I said before. It seems like this entire thing boils down to a control issue. you dont like how WB is running their company and doing with their property.

It isnt you business, both figuratively and literally.

> From the moral perspective, it is clear that WB clearly had real expenses. They spent money, bought rights, and tons of workers were paid good money.

Yes, they had expenses. You seem to have a very very rudimentary understanding of accounting and have conflated expenses with losses. An expense is not a loss. If you buy a factory for $1 million, you didn't lose $1 million dollars. You now have an asset, a factory, that is worth approximately $1 million. You don't get to go to the IRS and say "I lost $1 million dollars this year because I bought a factory". The IRS will tell you, no you didn't. You still have your $1 million, it's just now in the form of a factory instead of cash.

Likewise, WB spent money and created an asset, a film. That film has a market value. Maybe they don't like the film, but that doesn't change the reality that it's worth something. We know approximately how much it's worth because several other companies made offers to buy it.

Instead WB wants to lie and say it isn't worth anything. So, no I don't like how they are running their company when they want to lie and cheat to get out of paying the taxes they owe. You can't buy a factory for $1 million and then turn around and say "yeah, it's not worth anything anymore", and you shouldn't be able to say a movie isn't worth anything when it very clearly is. We do not gain anything by enabling companies or anyone to deny reality.

The value of a destroyed movie is zero.

How is that a lie?

No it’s not. If someone offered $10 million for the movie and they chose to destroy it instead, then destroying the movie had a value > $10 million to them because they chose that over the money. If it were worth zero, then why wouldn’t they take $10 million in exchange for something they believe is worth $0?

Can you answer your own question?

Why would a greedy company ever intentionally reduce the value to $0 via destruction instead of selling it for $10M?

10M sale plus a 80M deduction is far better than a $90M deduction.

I already answered that. Because the value of doing so is greater than $10 million. Hence, the value of the movie is NOT $0, even when it is deleted they still retain the exclusive rights and that has value. So to say the value is $0 is a lie. When the movie studio claims “Oh boo hoo our movie is worth $0 we need to write it all off” They are lying and the IRS should call it for the bullshit it is and make them take a smaller reduction for the expenses minus the residual value of the movie.

I think you fundamentally misunderstand what's being written down to zero. The movie is being written down to zero, not all of these extended rights and IP you're talking about.

That's how a company can lose more money on a $10 million sale then deleting it. If you have to include more than $10 worth of IP or obligations with the sale is a negative return. Alternatively, selling a movie could cost you more than $10 million in losses on a different movie.

These are all legitimate reasons to destroy instead of sell it. Avoiding costs are fundamentally different than increased Revenue for the purpose of taxes, even if they're monetary value is the same. Cost avoidance is not taxable value creation.

I can save $20 in laundry fees by not shitting in my bed, but I don't pay taxes on the value I saved. This is for two reasons. First, I'm no richer off after not shitting in my bed then I was before. Second, the alternative is I would have to pay taxes on every second of every day I chose not to shit in my bed.

I don't think that any retained rights are being valued at zero, besides the distribution rights to a a movie that doesn't exist.

If they keep the rights to develop a script, for example, that would have some tiny residual value.

They’re not avoiding any costs by selling the movie. They would just have a smaller loss than if they didn’t sell it. They don’t have to sell the entire rights to the underlying IP, just the one movie. Nobody is taxing anyone for avoiding losses.

You clearly have some kind of philosophical objection to taxes in general and a very confused notion that companies are allowed to just deduct anything they want without any restrictions and that is not how this works in the slightest.

This isn’t complicated. If you make a movie and release it and nobody goes to see, ok you lost money, write it off. If you make a movie and it’s not working out and you sell the rights to someone else to cut your losses, ok you lost money, write it off. If you make a movie and then you’re like “jk lol I just want tax deductionz plz.” No, screw you. You’re just playing games with the tax system instead of making movies, so fuck off.

Individuals certainly aren't taxed on their net profit, so I don't see how that could be "fundamental to the whole premise". If the tax code has effects that are noxious to the public, it's a public matter to revise the tax code.

Maybe at some size corporations _should_ become public entities to avoid dragon disease and only those corporations having the means of production. After all, they did grow enormously big by consuming public resources and labor.

Neither the resources or the labor are public.

So these companies exist in a different reality where they draw their resources and labor from somewhere else? Where else would labor come from if not the public?

"the public" and "public" are two different things. the labor and resource markets are private, not public.

The markets maybe. Markets aren't the thing though.

Neither are the things in question, the resources for movie making are not public, crew isn't public, actors aren't public. It's not a public resource in any way.

money is a public resource.

Money isn't consumed and it only has value when used.

that's true. Therefore billions should return into circulation and/or otherwise return to the public.

Believe it or not billionaires are part of the public and those billions are in circulation. There are no dragons sitting on hoards of gold.

More importantly: money that is not in circulation doesn't affect you or me, it has the same weight on the economy as all the gold still not mined.

It sure don't look this way to me. I guess we'll agree to disagree on most points here.

How can we disagree on facts? There are no billionaires just sitting on billions. They are in circulation.

your facts: billionaires not sitting on billions. My facts: homelesness exists.

Also moving money from your left hand to your right is not circulation. It should "trickle down". Wonder where I heard this.

It is clear you're arguing from an emotional, not logical, standpoint where facts don't matter.

Taxation is literally and entirely about wresting resources from individuals to serve the larger needs of a society that individuals are unlikely to address.

It's literally there to serve infrastructure and rebalancing needs without which the individuals end up sitting in ruined playpens, drowning in their own filth and unable to do commerce with anybody else.

Never mind about when the 'individual' is a corporate entity that rightly or wrongly thinks itself obligated to chase the most ruinous short-term strategy it can find, as a matter of fiduciary duty. That just exaggerates what already happens with ambitious human individuals.

Tax law is only and solely about forcing people to do what you want, starting with the very concept that people will never want long term thinking or cooperation in any significant way. (in fact, people will want cooperation, but sociopaths, human or corporate, will tend to stomp all over the cooperation-wanting people, wreck their stuff, then want a tax write-off because the stuff they wrecked is now broken)

>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

Indeed we could, but unfortunately we already have cryptocurrency.

Agreed on every other aspect of your observation.

Maybe when it's 'an amazing and new Road Runner movie', the waste has a more appealing face?

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