Documentary Filmmaker Lee Storey Victorious in U.S. Tax Court
DOCUMENTARY FILMMAKER LEE STOREY VICTORIOUS IN UNITED STATES TAX COURT RECOGNITION OF FOR-PROFIT FILMMAKING STATUS
Entertainment Attorney Michael C. Donaldson’s Amicus Brief Supports Documentary Filmmaking as a Legitimate Business in Lee Storey Case
The International Documentary Association (IDA), along with Film Independent (FIND), National Association of Latino Independent Producers (NALIP), Women Make Movies, National Alliance for Media Art and Culture (NAMAC) and the University Film and Video Association (UFVA), claimed victory after lending their names to an amicus brief filed last year on their behalf on a pro bono basis by entertainment attorney Michael C. Donaldson in support of the documentary film community in which it urged the United States Tax Court to recognize that documentary films are overwhelmingly undertaken in pursuit of profit. U.S. Tax Court Judge Diane L. Kroupa ruled that producer/director Lee Storey can write off losses from her filmmaking despite failing to make a profit for six straight years. “Even if it takes six years, the making of a documentary, in spite of educational and public good, is also a business,” said Donaldson, who further express that the win was particularly important since the issue has rarely been addressed in such a direct fashion by a court. In her 46-page decision, Kroupa not only deemed documentary filmmaking a legitimate business, but also acknowledged it as being one with a longer-than-normal unprofitable start-up phase – allowing Storey to claim the entirety of her losses.
The amicus brief was filed, by entertainment attorneys Michael C. Donaldson and Christopher L. Perez of Donaldson & Callif, LLP on a pro bono basis, in a case examining the IRS’s challenging of the deduction of business expenses from the production of "Smile 'Til It Hurts: The Up With People Story" by documentary filmmaker Lee Storey. “Smile ‘Til It Hurts” explores the history of the youth choir Up With People from its founding in 1965 on conservative ideals and cult-like ideology to its present-day incarnation and departure from its origins. Following an audit in the tax years 2006, 2007, and 2008, the IRS challenged the deductions Storey made for business expenses, which amounted to a purported $311,809.90 (applicable interest and penalties included).
During the trial at the United States Tax Court on March 9, 2011, Judge Kroupa expressed her inclination to hold that Storey satisfied several factors in the nine-factor test. At the same time, however, she questioned whether a documentary, in general, could be for profit since by its nature it is designed "to educate and expose." Donaldson and the IDA understood that this statement could create a dangerous precedent for filmmakers if confirmed in a ruling. The amicus brief stated that a judicial pronouncement that documentary filmmakers are not engaged in a profit-making activity would have a chilling effect on the documentary filmmaking industry, as documentarians would no longer be able to claim deductions for their business expenses pursuant to the Internal Revenue Code. The brief argued that while filmmakers certainly do make films to educate and expose, they are for the most part engaging in a for-profit endeavor.
The amicus brief filed in Lee Storey’s case represents the most recent effort undertaken by Michael Donaldson at the behest of IDA in its role as sole dedicated advocate for the rights of the documentary filmmaking community. Previous cases to which Donaldson and IDA have contributed include such topics as: freedom of speech, fair use, filmmaker exemptions to the DMCA (Digital Millennium Copyright Act), net neutrality, use of trademarks and copyrights, the ability to depict animal cruelty without fear of criminal prosecution, and supporting “Crude” director Joe Berlinger’s battle to prevent turning the entirety of his film’s dailies over to oil company Chevron.
The coalition includes:
• The International Documentary Association
• Film Independent
• National Association of Latino Independent Producers
• Women Make Movies
• National Alliance for Media Art and Culture
• University Film and Video Association
• Robert Kenner (Food, Inc.)
• Liz Garbus Moxie Firecracker Films)
• Annie Roney (Ro*Co Films International)
• Meyer Shwarzstein (Brainstorm Media)
• Rob Epstein (Chair of the Board of Governors of the Academy of Motion Picture Arts and Sciences Documentary Branch)
• Eddie Schmidt (This Film is Not Yet Rated)
• Jeffrey Blitz (Spellbound)
• Jaimie D'Cruz (Exit through the Gift Shop)
In The Matter Of: Lee & William Storey v. Commissioner of Internal Revenue: Docket No. 10230-10.