Fox News settles with Dominion, agrees to pay $787.5 million

[Ken]

Ken, I’m not quite sure how your accounting method works…

If I owe someone $1000, I owe them $1000. My net cost is $1000.

When I do my taxes next year, if it’s a deductible expense, I can demonstrate my net profit was lower and pay less taxes. My net outlay is still $1000.

If it’s not deductible and my tax bracket is, say, 28%, then my net outlay is $1280.

I have to earn $1000, pay 28% tax on that, and pay the person I owe $1000.

With the way things are going at Fox News, they might not have much profit to worry about…

My accounting method works like this:

Dominion gets a check for $787.5 million
FOX contributes a net of $622.125 to that payment

Where does the remaining $165.375 million come from that Dominion most definitely is going to receive? It does not magically appear out of thin air. It is real money.

Answer? This is $165.375 million that FOX owes to the government but that it gets to pay to Dominion instead.

Whether FOX sends it directly to Dominion. Or whether FOX sends it to the government and the government sends it to Dominion. It amounts to the same thing. It effect, the government is canceling $166,375 million of FOX's tax debt so that it can send it to Dominion instead.

If you want you can look at it differently. If FOX News happens to have $787.5 million of profits sitting in their bank account. Do they really have that much money to spend and do with as they please? No, they do not, because they owe taxes on those profits and they really only have a net worth in their bank account of $622.125 million.

It is exactly as if you are working in a 1099 job as an independent contractor and you receive a monthly payment from your employer of $5000. Can you just go and spend that whole $5000? No, you cannot unless you are foolish. You will need to set aside a portion for taxes and maybe you are only going to net $4,000. So sure, you can spend the whole $5,000 but you had still better come up with that $1000 somehow during tax time or the IRS is going to come looking for it.

[Josh]

If my business get sued and lose $5,000, I don’t owe that money. Taxes are on net profits. Gross profits don’t belong to the government. They aren’t like wages where they are withheld first.

An expense paid to another business means that business ends up paying tax on it. So there is a net zero difference to the taxpayers.

[Ken]

If my business get sued and lose $5,000, I don’t owe that money. Taxes are on net profits. Gross profits don’t belong to the government. They aren’t like wages where they are withheld first.

An expense paid to another business means that business ends up paying tax on it. So there is a net zero difference to the taxpayers.

So Josh. Simple question:

Dominion gets a check for $787.5 million
It costs FOX $622.125 million to write that check

Where does the extra $165.375 million come from?

[Josh]

So Josh. Simple question:

Dominion gets a check for $787.5 million
It costs FOX $622.125 million to write that check

Where does the extra $165.375 million come from?

No, it doesn't. It costs $787.5 million to write the check. If they have $622.125 million in their bank account, the check will bounce.

There is no "extra" $165 million.

I'm not sure if you've ever run a business, but "tax write offs" don't result in extra cash sitting in your bank account. They simply mean that sometime in the future, you may not have to write as big of a check to the government for net profits you already earned.

[Ken]

So Josh. Simple question:

Dominion gets a check for $787.5 million
It costs FOX $622.125 million to write that check

Where does the extra $165.375 million come from?

No, it doesn't. It costs $787.5 million to write the check. If they have $622.125 million in their bank account, the check will bounce.

There is no "extra" $165 million.

I'm not sure if you've ever run a business, but "tax write offs" don't result in extra cash sitting in your bank account. They simply mean that sometime in the future, you may not have to write as big of a check to the government for net profits you already earned.

It is a good thing you aren't an accountant.

In our example the company has $787.5 million in their bank account of which $165 million is owed to the government. So even though the money is there they can't really spend it or they will be unable to pay the taxes that they owe. The $165 million is on their books as a future expense.

However conveniently for FOX, the government is willing to forgive that $165 tax debt so that FOX can send it to Dominion instead. The government is in effect giving it to Dominion

If you have debt forgiven, you receive something of value, even if no money actually changes hands.

[Robert]

One thing for sure, I will never ask Ken to do my taxes or be my accountant.

[Ken]

One thing for sure, I will never ask Ken to do my taxes or be my accountant.

Which part do you think I got wrong?

[Josh]

In our example the company has $787.5 million in their bank account of which $165 million is owed to the government. So even though the money is there they can't really spend it or they will be unable to pay the taxes that they owe. The $165 million is on their books as a future expense.

That is not how corporate taxes are done (other than withholding or other pay as you go taxes).

When net profits are computed, taxes are paid out of that. If the money is already spent, then it isn't profit. It's an expense. You said "they can't really spend it", except everything Fox News spends would be an expense... or are you talking about that they can't pay out a $787 million dividend?

However conveniently for FOX, the government is willing to forgive that $165 tax debt so that FOX can send it to Dominion instead. The government is in effect giving it to Dominion

If you have debt forgiven, you receive something of value, even if no money actually changes hands.

That's not the definition of "forgiving a tax debt".

Ken, with respect, you seem to have strange definitions of things that don't match those used by either accountants or the government. Forgiving a tax debt is when the tax is already owed. Fox News doesn't owe any taxes so far for 2023, other than things like payroll taxes. When 2024 gets here (or whenever their fiscal year ends), they will compute their net profits and then pay the tax on that net profit. As far as I know, Fox doesn't have any outstanding tax debts.

[Ken]

In our example the company has $787.5 million in their bank account of which $165 million is owed to the government. So even though the money is there they can't really spend it or they will be unable to pay the taxes that they owe. The $165 million is on their books as a future expense.

That is not how corporate taxes are done (other than withholding or other pay as you go taxes).

When net profits are computed, taxes are paid out of that. If the money is already spent, then it isn't profit. It's an expense. You said "they can't really spend it", except everything Fox News spends would be an expense... or are you talking about that they can't pay out a $787 million dividend?

However conveniently for FOX, the government is willing to forgive that $165 tax debt so that FOX can send it to Dominion instead. The government is in effect giving it to Dominion

If you have debt forgiven, you receive something of value, even if no money actually changes hands.

That's not the definition of "forgiving a tax debt".

Ken, with respect, you seem to have strange definitions of things that don't match those used by either accountants or the government. Forgiving a tax debt is when the tax is already owed. Fox News doesn't owe any taxes so far for 2023, other than things like payroll taxes. When 2024 gets here (or whenever their fiscal year ends), they will compute their net profits and then pay the tax on that net profit. As far as I know, Fox doesn't have any outstanding tax debts.

We can wait until Fox files is 2023 taxes and then check. Since its books should be public as a public company.

If FOX writes its $787.5 million settlement with Dominion off its 2023 corporate taxes then I am correct. If it does not then you are correct.

[Josh]

We can wait until Fox files is 2023 taxes and then check. Since its books should be public as a public company.

If FOX writes its $787.5 million settlement with Dominion off its 2023 corporate taxes then I am correct. If it does not then you are correct.

How else do you think it would be done?

Fox Corporation is a C corporation. That means that every expense they have is deductible against net profits. That's part of how US corporation law works, and is a privilege C corps have since they also have to deal with double taxation of dividends paid to their owners. If an expense is not deductible, then a publicly traded corporation isn't allowed to spend it.

Settlements, in particular, are deductible for any business - not just C corporations. There are certain fines and penalties that aren't deductible, but this isn't a fine or a penalty - it's a settlement with no judgment of wrongdoing from the government. This is no different than any other settlement.

What is strange is that you think allowing tax deductibility of settlements is somehow "the taxpayers paying for it". As I've repeated multiple times, the taxation occurs to the person on the receiving end of the settlement. Dominion pays taxes and files tax returns, so they will have to place this in gross profits.

Ultimately corporation taxation is neutral. Every dollar of net profit is a dollar of net expense to someone else. The only people who truly pay taxes are people: when wages are earned, money is spent, or when dividends are paid (from a corporation).