Our Convoluted Tax Code Is at it Again

2012 August 4
tags:
by drdog09

Have you ever wondered why a TV show that you enjoyed got cancelled after the first season? Wonder no more —

(B) Special rules for television series
In the case of a television series—
(i) each episode of such series shall be treated as a separate production, and
(ii) only the first 44 episodes of such series shall be taken into account.

What was just quoted is Section 181 of the Internal Revenue Code. It is specifically targeted as entertainment production. Why is this important? It gives the definition of what is a direct expense vs what must be amortized as a capital plant. That classification has a large impact on how business treats certain opportunities.

Here is how this plays out. NBC pops off a pilot of “Life of ….” and gets favorable reviews in the focus groups. NBC orders a 26 series run of “Life of ….”. It garners a 35 share/22 Arbitron. That’s good, profitable but not a blockbuster. NBC orders another 15 episodes and let it run as well. NBC then announces toward the end that they will not renew the series. You are left scratching your head, `why`?

It all goes back to that “(ii)” of the tax law. So long as the run is less than 44 episodes NBC and the production company can expense out all costs against profits in the year it occurs. But when the guys with the green shades on their heads look down the road, there is not enough revenue stream from that show based on Share/Arbitron to carry an amortization schedule for episode 45 and beyond. So rather than take the risk and have to do a capital carry for those episodes it makes more sense to just kill the show. But here is the further insult — residuals such as rebroadcast and DVD sales are excluded from the provisions. So somebody like an NBC gets to have their cake and eat it too. They can expense out the production cost side yet amortize the post production resale side. A company like Caterpillar would die for a tax treatment like that.

But the code goes further. Ever wonder why you see practically every movie produced of late has its own production company even though it is released thru MGM? Our tax code again. Why take the risk of not qualifying for the expense deduction? Set up a separate company. Even if the IRS disallows, it is only one company with small assets vs the totality of Sony Corp being reviewed by the IRS.

Finally the politics of it all. —

(f) Termination
This section shall not apply to qualified film and television productions commencing after December 31, 2011.

The Pols make thunder about the need to raise revenue to stave off the deficit nearly every day. Hypocrites. Congress this week is attempting to pass a 2 year extension of the provisions of this section of the code. See HR 5793. This one bill has everything in it that is wrong with legislation these days. Meddles in business. Favors one industry over another. Is not serious legislation but yet another one of those temporary measures so that the Pol of interest may maintain control, etc.

HT: Instapundit, who has had a running series called REPEAL THE HOLLYWOOD TAX CUTS!

25 Responses leave one →
  1. 2012 August 4 11:22 am
    [1]
    JustMary permalink

    “This is a cause I am very passionate about” said Matt Damon never.

  2. 2012 August 4 12:07 pm
    [2]
    brucefdb permalink

    Have you ever wondered why a TV show that you enjoyed got cancelled

    Actually, no, I haven’t. I often wonder why any of them are renewed though.

    I must admit to being a bit of a Jeopardy/Wheel addict at times, but if any of you are likewise inclined, you cannot have missed the numerous obvious plugs put in for the Obamas recently, especially on Jeopardy.

    Unbelievable, even game shows.

  3. 2012 August 4 12:20 pm
    [3]
    justrand permalink

    O/T…
    Yahoo/AP “News” up now:

    Gay-rights activists stage kiss-in
    Scores of couples turn out to protest Chick-fil-A president Dan Cathy’s gay marriage comments.

    Wow…”Scores”??

    Yahoo and A/P ignored the MILLIONS who showed up on Wednesday…but now, “SCORES” show up and it is their lead story!

  4. 2012 August 4 12:27 pm
    [4]
    bc3b permalink

    It will be interesting, to see how the vote goes on this.

  5. 2012 August 4 1:58 pm
    [5]
    brucefdb permalink

    I remain confident jughead goes down big time. Lots of reasons.

  6. 2012 August 4 2:03 pm
    [6]
    mulletover permalink

    I saw more tables asking God to Bless their chicken sandwiches than I saw same sex couples making out.

  7. 2012 August 4 3:57 pm
    [7]
    justrand permalink

  8. 2012 August 4 4:18 pm
    [8]
    MI Conservative permalink

    Every Democratic Senator up for reelection needs to be asked if they would vote for a new majority leader if Dems control the Senate.

    Put em on the spot by starting it out with everything weird or strange Reid has said or done.

  9. 2012 August 4 4:31 pm
    [9]

  10. 2012 August 4 7:58 pm
    [10]
    drdog09 permalink

    7,

    Well after I found out this morning that someone broke into our garage I feel like the little ole lady. I will be carrying my 9mm in the open from now on. The sob’s got in by unscrewing the self tapping screws in the back of the building and pulling a metal panel aside. Guess they didn’t like what they saw in there as it does not look like anything was taken.

  11. 2012 August 4 8:04 pm
    [11]
    drdog09 permalink

    Its starting to sink in at 9th circus that the 2nd amendment is a right — http://www.volokh.com/2012/08/04/judge-reinhardt-carrying-a-gun-is-a-second-amendment-right/

  12. 2012 August 4 8:12 pm
    [13]
    brucefdb permalink

    brucefdb electoral map: We win, they lose!

  13. 2012 August 4 8:33 pm
    [14]
    drdog09 permalink

    Bruce,

    you might be right.

    The MSM is consistently now over sampling Dims in polls to try and drag Obammy’s sorry ass across the finish line. The facts on the ground are not matching their pitch.

  14. 2012 August 4 9:27 pm
    [15]
    Wylie E. Coyote permalink

    “Some of his feedbackers have identified a deeper issue. Here’s a comment from one feedbacker in the middle of the response thread:

    Here’s the real jobs info. In June, according to [the Bureau of Labor Statistics, there had been 142,415,000 people employed in the United States. In July, that dropped to 142,220,000–a decline of 195,000. So, essentially 350,000 were retired, died, or fired since the end of June. And businesses only hired to replace about 60% of them. That’s almost 200,000 fewer people with a paycheck to spend. Tell me the economy isn’t tanking.

    Even this doesn’t bring us to the heart of what SHOULD be the debate, though, in my opinion.

    The heart of the unemployment issue has to do with monopoly central banking and the distortions that it introduces into the larger economy.

    It is hard if not impossible for more people to fully comprehend how even their core belief systems, along with every part of their daily lives, have been manipulated by what we call directed history.

    It is monopoly central banking that via the boom/bust cycle creates first euphorias and then recessions and depressions. In doing so, the constant monetary stimulation actually changes the way society evolves.”

    http://www.thedailybell.com/4152/Anthony-Wile-What-Is-the-Status-of-the-Real-Unemployment-Debate

  15. 2012 August 5 6:14 am
    [16]
    brucefdb permalink

    If you want to know how the most corrupt US Administration in history added 163,ooo jobs in July when we all know the economy stinks read the following:

    July payrolls ‘surge’ to 163K. Do they? Do they really?

    Do they Emily. Do they really? Robert Hartley from ‘The Bob Newhart’ show

    More but still weak payrolls, 42 months of 8+% unemployment, but that does not tell the story.

    Nonfarm Payrolls, July (8:30): 163K actual versus 100K expected, 64K prior (revised from 80K)
    Nonfarm Private Payrolls, July (8:30): 172K actual versus 105K expected, 73K prior (revised from 84K)
    Unemployment Rate, July (8:30): 8.3% actual versus 8.2% expected, 8.2% prior
    Hourly Earnings, July (8:30): 0.1% actual versus 0.2% expected, 0.3% prior
    Average Workweek, July (8:30): 34.5 actual versus 34.5 expected, 34.5 prior

    Non-Farm: Non-adjusted jobs added actually declined from June to July (133,082 June versus 132,868 July), and overall jobs fell by 1.248M. So how do you get a 163,000 number? You adjust by adding 377,000 as a seasonal adjustment, the largest seasonal adjustment that we can find for the month of July.

    Then the BLS factored in, as it always does, the birth/death adjustment to the number to account for the change in population. In July 2011 this added 5K, very similar to the 6K in July 2010. This July in a hotly contested Presidential election? The BLS added 52K, a factor of 10, a 1000% increase year over year.

    Total jobs plucked out of the air that were statistical aberrations solely at the discretion of unelected government officials with a vested interest in election outcomes: +429,000.

    Full time jobs lost to part-time: Those underemployed, wanting more work along with those wanting any work rose to 15%. U6.

    h/t InvestmentHouse

    Thses people are criminals.

  16. 2012 August 5 6:41 am
    [17]
    drdog09 permalink

    More from Instapundit on the tax law and the entertainment industry — http://washingtonexaminer.com/sunday-reflection-repeal-the-hollywood-tax-cuts/article/2503964

  17. 2012 August 5 7:00 am
    [18]
    drdog09 permalink

  18. 2012 August 5 7:15 am
    [19]
    judyt2012 permalink

    Kisses to Bruce for sharing… Now we need to share it forward to everyone we know…

    I am posting a shorter version in my Facebook Status

  19. 2012 August 5 7:30 am
    [20]
    brucefdb permalink

    Thanks judyt.

  20. 2012 August 5 7:30 am
    [21]
    judyt2012 permalink

    http://www.youtube.com/watch?v=eauucvRofwg&feature=relmfu

    I loved this….

    Where has this guy been? Oh yes, Alaska.

  21. 2012 August 5 7:41 am
    [22]
    brucefdb permalink

    Great article, drdog…thanks!

  22. 2012 August 5 7:55 am
    [23]
    brucefdb permalink

    21….lol….super analogy.

  23. 2012 August 5 10:23 am
    [25]
    drdog09 permalink

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