> That they actually incurred the losses they claim to have incurred, so they get a tax break. The taxpayer is defrauded.
Did they not incur such losses? Did they claim to delete the movie but actually kept a backup? Granted, the loss is self-inflicted, but that's not a relevant factor in the tax code.
Destroying a movie to claim the tax break is analogous to burning your house down for the insurance money or to claim a casualty loss. Yes, you really did lose your house. No, you are not entitled to claim it as a write-off.
That's fraud because the insurance policy specifically says it won't pay out if you intentionally set it on fire. If you actually did set it on fire, then claimed that you didn't then that's the deception.
>No, you are not entitled to claim it as a write-off.
Can you point to the relevant tax law that prevents this?
“ Nondeductible losses. A casualty loss isn’t deductible, even to the extent the loss doesn’t exceed your personal casualty gains, if the damage or destruction is caused by the following.
Accidentally breaking articles such as glassware or china under normal conditions.
A family pet (explained below).
A fire if you willfully set it, or pay someone else to set it.
A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
Progressive deterioration (explained below). However, see Special Procedure for Damage From Corrosive Drywall, later.”
There is no law that specifically prevents it, just as there is no law the specifically prevents you from deducting, say, money that you pay to buy groceries. What there is is a very long list of things you can deduct, and grocery money, and losses that you suffer from willful destruction of your own property, are not on that list.
> analogous to burning your house down for the insurance money
It’s very different because insurance pays out to make whole. Taxes are just taxes.
It’s the equivalent of burning your house down and then writing off the depreciated value because it burned down. Totally legal. Because it’s worth less after burning it down. Assuming you burn it in a legal, controlled manner and not arson.
Every tax dollar you don't pay is a dollar someone else has to pay instead, or a dollar that gets added to the national debt. And burning your house down and writing off the depreciated value is absolutely not legal.
> Assuming you burn it in a legal, controlled manner and not arson.
Yes, well, that is a might big assumption. I doubt you could point me to a single instance of someone actually burning down their house in a "legal, controlled manner".
It ultimately boils down to details. If there really were a legitimate reason to destroy a film (or a house) rather than selling it to the highest bidder then you might have a case. But you'd be very hard-pressed to come up with a set of legitimate circumstances for either one.
Only in the case when they can't profitably dispose of that inventory any other way. So unsold books, for example, can be destroyed and deducted, but an unoccupied office building cannot.
If I burn down my house and claim insurance or tax losses, they’ll laugh and send me to jail. Explain how a corporation doing the effectively the same thing should get a write off. It’s a sham.
And why should a studio be allowed to claim a movie they destroyed on taxes again? I’m not interested in the answer, “it’s legal,” because a lot of things are legal that should be illegal and vice versa, I’m looking for your moral reasoning here as to why this shouldn’t be made illegal.
It's not the same because the tax code is, even more than the rest of the law, really just made up.
It just tells you when you have to pay and when you don't have to pay. If they didn't explicitly write in that you're not allowed to burn a movie, then burning a movie gets you a tax break. End of.
A company buys a balloon making machine for $100k. They use the machine and depreciate it over the years to $20k, getting $80k of deductions over the years. They decide to stop making these balloons. Someone offers them $1k but they decline. They destroy the machine, and have a $20k loss on their taxes.
This is all above board, totally normal behavior. There are reasons to be against destroying these movies, but tax fraud really isn’t one of them. They actually did take the loss of whatever was the remaining value of that asset.
They used the machine here, and depreciation rules mean you can do that, but most companies will still try and keep using a machine until it’s no longer working for that process, whether or not it was depreciated fully. Also, I expect there are different time windows for dormant equipment depreciation and while laptops might depreciate in five years I doubt industrial equipment does at the same rate.
The deductible losses are supposed to be incurred in pursuit of profit. Not every expense a business incurs is tax deductible. Not even trying to sell it calls into question whether it was in pursuit of profit. They’re expecting the American tax payer to make up the shortfall and that’s likely based on Hollywood’s unique accounting practices, which has a tendency to inflate the claimed expense amount.
> True, there are multiple reasons why some expenses aren't deductible, but AFAIK no such exception exists for "intentionally destroying it".
No, of course not. There isn't an enumerated list of weird cases and if your weird case doesn't match you can get a tax advantage. There are rules about what is and isn't deductible and if you're unclear, you can ask the IRS for a clarification. If you don't get that clarification you better be prepared to adequately defend your tax theory when you get audited. What I suggested is what they're doing may not be in line with the rules about what is deductible. It seems like something should be evaluated.
> There's no way that you can save taxes by doing this.
You absolutely can save taxes by doing this. They're not only not paying any tax, they're offsetting tax they would otherwise pay on a profitable film. I think what you're saying is that they couldn't get enough tax deductions to offset the money they put into the film development. That's a claim I didn't make. I do think it's possible they could get back more money than they otherwise should. It's not like tax fraud is a rare occurrence. And that situation could make this maneuver more attractive. I think it's worth an audit.
You make a good point. When somebody says something should be illegal, the clever route of discussion is to repeatedly point out that it is not currently illegal — a fact that both of you agree about, since that is the premise for making the statement that it should be illegal.
We aren't arguing that it's tax fraud by definition, but that it should be considered fraud. If the tax code incentivizes destroying something then that seems like a defect of the tax code.
If you re-read my prior comment, you'd see my complaint is that it's not "fraud" by any reasonable definition because deception is not involved, not that it should or should not be allowed.
> "fraud" doesn't mean "losing money in a manner I don't like", so I ask again: where's the deception here?
The buyer is not buying the hard drive, they're buying the asset it holds. If you destroy the only copy, you make it unobtainable but the value of that intellectual property is arguably still $30m. (If said offer was $30m, in this case)
For that reason: if the studio destroyed all known copies of the movie, write it off, and then an unknown copy gets leaked by someone who worked on it -- the studio will still sue for damages >$0 and claim in court that any piracy downloads are potential viewings, ergo stolen profit.