Rep. Joaquin Castro asks Justice Dept. to review Warner Bros.' practice of permanently shelving movies for tax breaks

That is where I, despite being a tax professional, must say “I’m not sure. I’d think that there has to be more to it.”

Hollywood accounting is notoriously weird to begin with and so who knows what expenses might get shifted onto a film’s balance sheet through the weird in-house billing system that studios have. It could be well like a venture capital firm that buys a company, sells the real estate, and then rents it back to the company. Hypothetically, since each film has its own sub-company, there could be agreements in place that a certain production pays expenses for another in addition to its own. I’d not put it past the studios.

Honestly, it is long past time that the major studios were audited.


Remember, despite making $475M against a budget of $32.5M, Return of the Jedi “never turned a profit.” That is BEFORE sinking a movie to eat up costs.

Doing a little research, yup, studios often cross-collateralizes the accounting of two projects and shifts losses from a flop onto a profitable project by shifting costs involving internal operations. So, it isn’t a far stretch to think that they are spreading costs from other projects into the film that they are sinking as opposed to the other way around. That way, they can expense a lot more money immediately.

It looks shady as hell and, when challenged, studios routinely settle rather than allow their accounting methods be closely scrutinized in court.


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