April 19, 2012

Filmmaker Lee Storey Wins IRS Case "On All Counts"

Lee Storey, an attorney in the area of water rights and a documentary filmmaker, learned today that her documentary film Smile ‘Til It Hurts: The Up With People Story has been considered a for-profit endeavor in the eyes of the US Tax Court. She is therefore forgiven the outstanding amount owed to the IRS from her 2006-2008 Federal tax returns. This ruling sets a precedent for documentary filmmakers to come, hopefully causing future auditors to uphold a standard for upcoming productions and burgeoning filmmakers who find themselves in similar situations.

Back in March, Storey participated in one of IDA’s Doc U educational panels, entitled The Business Side of Documentary Filmmaking. During the panel, Storey detailed her ongoing legal struggles against the IRS' claim that "attorneys cannot also be filmmakers." After working on her film for five years, the IRS stated that her filmmaking was more a "hobby" than a viable means of income. The IRS claimed that she owed them around $300,000 in back income taxes from the three years that she spent making her film.

But as of today, April 19, the United States Tax Court filed its findings of fact and opinion, which clears Storey on all counts. "The primary issue," the judge stated, "is whether [Storey], a law firm partner and full-time attorney, was involved in the trade or business of film production under section 162 during the years at issue. We hold that she was engaged in the trade or business of film production during each of the years at issue and that she was engaged in this business for profit."

Michael C. Donaldson and Christopher L. Perez, the two attorneys from Donaldson + Callif, LLP who filed an amicus brief on Storey's behalf, were delighted with the outcome of the case. "Even if it takes six years, the making of a documentary, in spite of educational and public good, is also a business," said Donaldson. "The win is particularly important because the issue has rarely been addressed by a court in such a direct fashion."

"It's such an important decision," said Perez after the results of the case were announced. "Yes, documentary filmmakers are beneficial to society because their films educate and expose. But so many documentarians rely on their filmmaking to make a living—and they should be treated as such."

Read more details of the court's findings.

We were extremely happy to have been a part of filing the amicus brief that lead Storey's case into trial. We are proud to say that the outcome of her trail is one that was well-deserved and long-coming. A special thank you to Michael C. Donaldson and Christopher L. Perez for filing this brief on our behalf in conjunction with Film Independent, National Association of Latino Independent Producers, Women Make Movies, National Alliance for Media Art and Culture and University Film and Video Association.