The Exotic World of Tax-Scam Record Labels

October 14, 2014 8:22 AM

"The thought of someone releasing records to not make money always struck me as a fascinating example of how economics and music sometimes make for strange and uncomfortable bedfellows." For a couple of years in the mid-to-late 70's, a few strange record labels popped up with the sole purpose of taking advantage of a little-known loophole in the tax code that allowed record labels to take valuable tax write-offs for unsuccessful releases. These records were often released without the musicians' knowledge and either quickly destroyed, kept in a warehouse, or given in small quantities to a handful of record stores.

One of the most valuable tax-scam releases.

Some more info.

posted by hadlexishere (22 comments total)

This scam ended with disastrous crossover success for a Nazi-themed smooth jazz album, right?
posted by Iridic at 8:26 AM on October 14, 2014 [13 favorites]

Came for a riff on The Producers, Iridic scores!
posted by CheeseDigestsAll at 8:29 AM on October 14, 2014 [2 favorites]

Is this kind of like the opposite of the kind of thing that made Van Morrison sing about ringworm?
posted by EmpressCallipygos at 8:34 AM on October 14, 2014 [4 favorites]

No, I think the Van Morrison album was made to get out his record contract. Another interesting subset of semi-intentionally bad recordings but unrelated.
posted by destro at 8:40 AM on October 14, 2014 [1 favorite]

Very cool! Thanks.

But maybe re-think the dark blue text on the black background.
posted by freakazoid at 8:44 AM on October 14, 2014

This might be the longest article I have seen on music on ages that does not seem to include any audio. I guess the songs are sort of beside the point.
posted by DirtyOldTown at 8:49 AM on October 14, 2014

I believe that this is the/one of the albums mentioned in the second and third articles, if you want to take a listen. It's not bad.
posted by clawsoon at 9:00 AM on October 14, 2014 [1 favorite]

Tax-Scam Records is the name of my next label.
posted by Mick at 9:12 AM on October 14, 2014 [6 favorites]

Came for a riff on The Producers

here you go
posted by thelonius at 9:18 AM on October 14, 2014

Tax Reform Act of '86 put a stop a whole lot of tax shelters, the record label scam included.
posted by jpe at 9:53 AM on October 14, 2014 [3 favorites]

I'm a little confused about how this worked. From the article, it sounds like the idea was not to take advantage of some loophole that gave recording companies a special tax credit. It was to just outright lie on your tax return, to fabricate records showing that you spent vastly more money on promotional and other expenses than you actually did, and then claim those utterly fictional expenses against existing profits. That's not a loophole at all, it's flat out tax fraud.

So, that being the case, why produce an actual record in the first place? If you're going to completely make up production and promotional expenses that never existed, why not just make up the record while you're at it. In other words, why make a real album and pretend it cost far more than it actually did when you could just invent a pretend album to have spent all that pretend money on? You're building the whole thing on fake paperwork anyway, what's one more bit of fakery?

And what about this was specific to records? Doesn't any business write-off expenses against profits anyway? (You can tell I'm not in any way an accountant.)
posted by Naberius at 11:13 AM on October 14, 2014 [3 favorites]

[W]hy produce an actual record in the first place?

Plausibility. The article mentions that the write-off is about $250,000. Not bad. You could do that with no evidence, and get a quarter million dollars and something that looks like a red flag to an auditor. Or you can sacrifice (per the article) 5-10K (2-5%) of your write-off and have evidence that would a) wave off said auditor and b) look good in court if an especially industrious auditor could not be dissuaded.

It's insurance. For pennies on the return.
posted by aureliobuendia at 12:15 PM on October 14, 2014 [3 favorites]

You made the album because in the 70s and 80s, people were less outright with their tax lies. Plus, the 70s man, does there have to be a reason?

The world is better off with these tax scam records fueling the tax-scam used record stores.
posted by GreyboxHero at 12:16 PM on October 14, 2014

Morris Levy, the major Mob-connected guy who was behind a lot of these tax-scam labels, was also the inspiration for the character of Hesh Rabkin in the Sopranos. I think the recent autobiography by Tommy James (of Tommy James & the Shondells fame) goes into detail about how his stint at Roulette Records meant he was for all practical purposes working for the Mafia. In other words, the world has "Crimson & Clover" and "Crystal Blue Persuasion" because Tommy James didn't want to end up wearing cement overshoes.
posted by jonp72 at 12:19 PM on October 14, 2014 [3 favorites]

I understand that a very similar approach is quite common in the film industry, where tax breaks for productions are fairly common. Produce a bad film, fudge the costs, get a big tax break. There's definitely some shady characters running around the film industry making productions that nobody's ever going to watch.
posted by leo_r at 12:52 PM on October 14, 2014 [1 favorite]

I understand that a very similar approach is quite common in the film industry, where tax breaks for productions are fairly common. Produce a bad film, fudge the costs, get a big tax break.

Uwe Boll's career wouldn't be possible without these tax scams.
posted by jonp72 at 12:58 PM on October 14, 2014 [3 favorites]

But Boll's career was built on a real loophole in German tax code - since closed, which is why he's finding it a lot harder to make big budget movies these days. Nobody was breaking any German laws or filing false tax returns. They were just taking advantage of something that German law allowed them to do. If Germany wanted to give investors that kind of a credit, they'd gladly take it.

This is different. This is just plain lying to the IRS about your expenses. Presenting numbers you can't back up because they're fake. The whole thing should fall apart the moment you get audited anyway, and I can't see what actually producing a handful of physical albums does to change that.

Also, note that the German thing didn't rely on the film ultimately losing money, and Boll was absolutely not trying to shovel out a bad movie so it would fail. I spent a fair amount of time interviewing the man and, say what you will about his movies, he was utterly serious and dedicated to what he did in a way that, frankly, was kind of charming. Didn't make the movies any better, but I had to sort of like the guy. (As long as I didn't actually work for him, mind you. Knew people who did that too. Oy...)
posted by Naberius at 3:02 PM on October 14, 2014 [4 favorites]

There was a similar loophole, named 10BA, in the Australian tax laws during the 1980s, which was responsible for a whole raft of bad films such as Outback Vampires.
posted by acb at 3:47 PM on October 14, 2014

Implying that there are non-tax-scam record labels.
posted by ChurchHatesTucker at 4:45 PM on October 14, 2014

BARRY ALFONSO: A couple of years ago, a songwriter I knew called up and asked, "Hey, do you want to make a lot of money fast?" I said, "Yeah!" It turned out he was writing scripts for children's records that were not really going to be released (or only some of them would be); it was all being recorded and catalogued for tax write-off purposes. So I wrote a bunch of scripts ... and realized it didn't matter what I said on a given topic, as long as I filled up the space.

Let's say the subject was Robin Hood and His Merry Men -- I would write a legitimate Robin Hood story. However, it got to the point where, for instance, I had been reading Church of the SubGenius literature and had to write a story about Louis Pasteur, so I put Louis Pasteur into the Church of the SubGenius. But beyond that, what was truly fascinating was listening to the guy doing the reading: he would read these scripts with absolutely no emotion ... because the whole idea was to stretch the text long enough to fill a record.

-- Pranks! (1987) pg 213
posted by user92371 at 7:21 PM on October 14, 2014 [5 favorites]

Found a Tiger Lily discography.

At the bottom is this:

14068...Richard Grasso 1: Season of Grace LP (1976?), Scientologist jazz-folk

Scientologist jazz-folk. Best genre ever.

Couldn't find any upload or sample of the actual album but found this page about it.
posted by honestcoyote at 2:34 AM on October 15, 2014

Recently departed legendary record man Henry Stone handily avoids entanglement with Levy:

One time when his mobbed up buddy Morris Levy tried to include gangsters into Stone's organization, Henry quickly said, "Gee, I'd love to Moishe, but the IRS are coming now to look at my books...." Morris hung up immediately and never brought it up again.
posted by bonefish at 12:28 PM on October 15, 2014 [2 favorites]