If they irretrievably destroy it, its value becomes zero. That's the essence of being able to claim the tax loss (to "finally determine the value").
It's no different from having a stock position in a company that's in limbo. You can't claim the tax loss and keep the position. You have to get the clearinghouse to take the position for $0 in order to claim the loss.
The studio's position is that they've already incurred the loss; now they're taking the action necessary to recognize the loss on their taxes.
I can't deliberately set fire to the money in my bank account and then write that off as a loss.
The movie is an asset, it has some value, the way to determine that value is to make a good faith effort to sell it (auction or broker of some sort) and if it sells for less than you have spent making it, then you can write off the difference as a loss.
Deliberately destroying the asset and then writing off the entire amount you spent on it is probably tax fraud.
> The movie is an asset, it has some value, the way to determine that value is to make a good faith effort to sell it (auction or broker of some sort) and if it sells for less than you have spent making it, then you can write off the difference as a loss.
Except you can't simply sell this movie. Releasing it might lead to reputational damage if the movie is not up to par (as many sister comments have pointed out) and selling it will be even worse, as whoever buys it is now entangled with your IP in addition to possibly tarnishing your reputation.
If ycombinator hires 3 engineers to rewrite hacker news 2.0, pays them for a year, writes off their salary as an expense, and then later decides that actually 2.0 is way worse than what’s currently out and trashes it, should ycombinator not be allowed to write off the investment?
Do you think that every failed A/B test should be not a valid business expense? Only winning tests are valid business expenses?
If an employee is paid for a sick day, PTO, or parental leave, or to attend a team-building event: what have they created with that money? The government must not allow such giveaways from the tax coffers!
All kinds of individual activities are permitted in profit-seeking businesses and not all of them are subject to “in order to deduct this, you have to have omniscient judgment and every individual action must locally optimize your business”.
If a tax benefit relies on destroying an asset, to claim the benefit it should be necessary to demonstrate that you've made a good faith effort to sell it for fair market value. Courts supervise this kind of thing in bankruptcies all the time. Seems reasonable to put a high (multi-million) floor on the write-off before this kicks in.
That's not how this works though, right? They're not saying "we think this movie was worth $100 million because that's what someone offered us, so we're going to write off $100 million.", they're saying "We spent $100 million on making this, and we think there's no way to recoup the expenses by releasing it, so we're writing off the $100 million we already spent on it." The "we already spent that money" is the key part here.
If you're running "Loot Boxes Unlimited" and your business is taking off like a rocket and you invest $300 million in a new HQ, and then just as your finishing up, congress passes a law making loot boxes illegal and you're no longer going to be able to afford moving into that new HQ, you get to write off those expenses just the same. You must offset them by any gains you get from any part of it you do sell off, but you're under no obligation to sell the building, you can just keep it on the books depreciating slowly. Most companies will try to sell what they can to recoup some of those losses, because recouping any of the loss tends to be a better financial option than the write off for that same amount. But selling a building doesn't have the same legal and contractual entanglements that selling a movie might have.
Additionally a building is still useful even if you can't use it for what it was originally intended for. But who is going to buy a movie they can't release? You'd need some company with enough money to buy a produced movie (even if at a discount) who also thinks they could release it and make enough money on it to cover their costs AND who will also be willing to take on all the contractual obligations like licensing and residuals. And chances are in addition to all of that, they also have to be willing to license the various properties that the movie studio already owns (or worse, re-negotiate the rights from the original holders that the studio had already previously negotiated).
It's also important to remember that those expenses would have been written off whether or not the movie was released. My understanding here is the only difference between releasing and not releasing the movie is whether that write off occurs over 3-5 years, or all in this year
If they spent $100M and get an asset out that is worth $30M then they have a loss of $70M. Lighting the $30M shouldn't count as additional loss that they can write off, IMO.
I think what actually happened is that they paid $100m to make the movie. Later they determined that releasing it would be detrimental to the success or value of the company (e.g. because of reputational damage).
To avoid causing this damage they deleted the movie making sure it doesn't get out and wrote off the asset. The act of deleting the movie is not what made it worthless.
If executives had really deleted the movie in spite of believing that releasing or selling it would have a net positive value of $30m, then it could still be written off.
It's the same as employees stealing inventory or vandalising an office. The company could then fire and sue those employees, but that doesn't change the fact that the asset is now worth zero for accounting purposes.
No, the specific reasoning people are mentioning here over and over again is that we, as a people, should not subsidize businesses lighting their property on fire.
If they want to completely toss out the movie then they can. But it's insane to think the government should pay them for doing so because they say it has no value.
It's not subsidizing, government isn't paying the studio. It's just that the studio will pay less taxes because the tax is based on profit and the studio had a loss.
If you decide to rebuild your HQ, you may well have to destroy the old one, even if someone would have bought it from you.
When a developer buys a property, razes it, and builds a new building there, all those costs and actions are permitted.
I find it amusing that a studio, who is almost surely getting professional tax advice with full knowledge of the facts and circumstances, is having the legality of the proposed course of action not just questioned but outright confidently asserted as contrary to the law based on an article that’s light on details.
> is having the legality of the proposed course of action not just questioned but outright confidently asserted as contrary to the law based on an article that’s light on details.
i'm confused, is the article saying that its illegal, or is it saying that it ought to be illegal? i for one agree with that attitude, or at the very least believe that a studio shouldnt be able to get a tax writeoff for just sending a completed film to the void.
>If you destroyed it, that was your choice, but you didn't thereby incur a loss of $30M. Any more than if you had dynamited your HQ building.
Where's the line between "dynamited your HQ building" and "investing money into FTX"? Both are intentional activities that leads to total loss of value, but I think most people would agree that the latter is tax deductible.
Did your investment of money in FTX cause it to fail? Because that's what destroying a building is: an intentional choice by a company to destroy an asset that it owns.
What about "destroying all copies of the movie except one, then moving that onto a sd card you got off aliexpress"? Sure, that's a pretty dumb thing to do, but arguably so was investing into FTX.
There are legal definitions of negligence. IANAL, but I'd imagine that what you're describing would meet those definitions.
Investment decisions aren't as easy to diagnose because there's a chance of upside. If FTX didn't end up as a scam, you stand to gain a LOT of money. The same can't be said of putting your only copy of a movie on a crappy SD card.
In addition, you could make the argument that the chances of FTX being a scam were priced in. That is, you're buying stock that accounts for the scam chances.
It's no different from having a stock position in a company that's in limbo. You can't claim the tax loss and keep the position. You have to get the clearinghouse to take the position for $0 in order to claim the loss.
The studio's position is that they've already incurred the loss; now they're taking the action necessary to recognize the loss on their taxes.