Comment by labcomputer

> whatever creative accounting they want to do still needs to ultimately satisfy IRS scrutiny if there's an audit.

Well, yes, but avoiding taxes is not the point of "Hollywood Accounting", rather avoiding paying actors.

The IRS can collect taxes from whichever business entity makes a profit, but, critically, actors cannot. They signed a deal with one entity, and are only payed a share of net profits if that one particular entity makes a profit.

Hollywood Accounting, then, is the process of shifting costs around so that the legal entity responsible for paying the actors never makes a profit.

The SPVs never own anything and never have any expertise in anything. So they have to pay the parent company for a wide range of services, from advertising and marketing to distribution to prop and equipment rental. That makes it easy to shift costs into the SPV as necessary.