Comments on watching and making films.
Monday, December 26, 2011
Friday, December 23, 2011
Thursday, December 22, 2011
Friday, December 16, 2011
Tuesday, December 13, 2011
Monday, December 12, 2011
Saturday, November 26, 2011
Friday, November 18, 2011
Wednesday, November 16, 2011
Monday, November 7, 2011
Joseph Kahn wants you to believe that people still care about music video's, and record companies should too!
Saturday, November 5, 2011
Monday, October 31, 2011
This article is copyright Kim Snyder and Kodak.When a New York newspaper reported that Mark Twain had been lost at sea, he is said to have replied, “The reports of my death have been greatly exaggerated.”
We know the feeling.
There has been much speculation about the fate of Kodak motion picture film over the last few weeks. We at Kodak refuse to let the volatility of the market or the rumors distract us from our mission – to provide the highest quality tools to tell your stories.
We are still making film – billions of feet of it! Sure, digital technology has impacted how filmmakers approach their work. But Kodak is a company with a long and brilliant presence, all built on ground-breaking science and technology. We are committed to continuing to do so, even in today’s landscape where film and digital coexist.
Something else that seems to get lost in the hype: We are more than a film company; we are the innovators who understand image making more than anyone else. We possess critical expertise from our past which we draw upon for our future. We have some of the brightest and most innovative researchers and scientists in the business working on our products – film and otherwise – to carry us into the future.
For example, our laser projection technology was recently licensed by IMAX (view the release). Laser projection technology offers a multitude of benefits to the viewing audiences, and features that help bring your vision to the big screen in better ways. IMAX and Kodak understand the need for this innovation. We are delighted to be working with them to assist with the implementation of the technology into the IMAX product family.
That’s not all. We are leveraging Kodak technology and intellectual property to bring an innovative digital asset management solution to market. It’s designed for content owners with assets of all formats created over the years.
And we will soon be introducing a new film! A new member of the VISION3 family of color negative films will be added to your film choices. With the latest film technology in the can, you can keep rolling in the most challenging production situations – on set or on location – and maintain a high resolution image through post and distribution.
Furthermore, with film still maintaining its archival leadership role in preserving the memorable images of the past centuries, we continue R&D towards expanding our archival film products to create a platform of choices for a variety of needs.
We’ll have more news on these new offerings soon, so stay tuned!
The bigger picture is: We have a great depth of experience and possibilities for turning 125-plus years of imaging technology and inventive product development into new solutions. Our KODAK DIGITAL ICE technology in scanners are being used to restore some of the most memorable images from cinema and television history; and our subsidiaries continue to make inroads on preservation and restoration (FPC/Pro-Tek) and visual and physical effects (Cinesite).
Our goal is to continue to show you that Kodak is the go-to resource for the best in image quality and workflow solutions that support your creative intentions – because we know you care.
We invite you to view a list of projects whose filmmakers are choosing Kodak film.
We know we can help you accomplish your filmmaking dreams, so contact us. Our worldwide team of Kodak representatives and experts are at your service.
Sunday, October 30, 2011
"The demand for film cameras on a global basis has all but disappeared," says ARRI VP of Cameras, Bill Russell, who notes that the company has only built film cameras on demand since 2009. "There are still some markets--not in the U.S.--where film cameras are still sold, but those numbers are far fewer than they used to be. If you talk to the people in camera rentals, the amount of film camera utilization in the overall schedule is probably between 30 to 40 percent."
At New York City rental house AbelCine, Director of Business Development/Strategic Relationships Moe Shore says the company rents mostly digital cameras at this point. "Film isn't dead, but it's becoming less of a choice," he says. "It's a number of factors all moving in one direction, an inexorable march of digital progress that may be driven more by cell phones and consumer cameras than the motion picture industry."
Aaton founder Jean-Pierre Beauviala notes why. "Almost nobody is buying new film cameras. Why buy a new one when there are so many used cameras around the world?" he says. "We wouldn't survive in the film industry if we were not designing a digital camera."
"I would have to say that the pulse [of film] was weakened and it's an appropriate time," Radin remarks. "We are not making film cameras." He notes that the creative industry is reveling in the choices available. "I believe people in the industry love the idea of having all these various formats available to them," he says. "We have shows shooting with RED Epics, ARRI Alexas, Panavision Genesis and even the older Sony F-900 cameras. We also have shows shooting 35mm and a combination of 35mm and 65mm. It's a potpourri of imaging tools now available that have never existed before, and an exciting time for cinematographers who like the idea of having a lot of tools at their disposal to create different tools and looks."
Do camera manufacturers believe film will disappear? "Eventually it will," says ARRI's Russell. "In two or three years, it could be 85 percent digital and 15 percent film. But the date of the complete disappearance of film? No one knows."
From Radin's point of view, the question of when film will die, "Can only be answered by Kodak and Fuji. Film will be around as long as Kodak and Fuji believe they can make money at it," he says.
FILM PRINTS GO UP IN SMOKE
Neither Kodak nor Fuji have made noises about the end of film stock manufacture, but there are plenty of signs that making film stock has become ever less profitable. The need for film release prints has plummeted in the last year and, in an unprecedented move, Deluxe Entertainment Services Group and Technicolor--both of which have been in the film business for nearly 100 years--essentially divvied up the dwindling business of film printing and distribution.
Couched in legalese of mutual "subcontracting" deals, the bottom line is that Deluxe will now handle all of Technicolor's 35mm bulk release print distribution business in North America. Technicolor, meanwhile, will handle Deluxe's 35mm print distribution business in the U.S. and Deluxe's 35mm/16mm color negative processing business in London, as well as film printing in Thailand. In the wake of these agreements, Technicolor shut its North Hollywood and Montreal film labs and moved its 65mm/70mm print business to its Glendale, California, facility; and Deluxe ended its 35mm/16mm negative processing service at two facilities in the U.K.
"It's a stunning development," says International Cinematographer Guild President Steven Poster, ASC. "We've been waiting for it as far back as 2001. I think we've reached a kind of tipping point on the acquisition side and, now, there's a tipping point on the exhibition side."
"From the lab side, obviously film as a distribution medium is changing from the physical print world to file-based delivery and Digital Cinema," says Deluxe Digital Media Executive VP/General Manager Gray Ainsworth. "The big factories are absolutely in decline. Part of the planning for this has been significant investments and acquisitions to bolster the non-photochemical lab part of our business. We're developing ourselves to be content stewards, from the beginning with on-set solutions all the way downstream to distribution and archiving." Deluxe did exactly that with the 2010 purchase of the Ascent Media post production conglomerate.
Technicolor has also been busy expanding into other areas of the motion picture/TV business, with the purchase of Hollywood post house LaserPacific and a franchise licensing agreement with PostWorks New York. Technicolor also acquired Cinedigm Digital Cinema Corp., expanding their North America footprint in Digital Cinema connectivity to 90 percent. "We have been planning our transition from film to digital, which is why you see our increased investments and clear growth in visual effects and animation, and 2D-to-3D conversion," says Technicolor's Ouri. "We know one day film won't be around. We continue to invest meaningfully in digital and R&D."
Although recent events--the end of film camera manufacturing and the swan dive of the film distribution business--makes it appear that digital is an overnight success, nothing could be further from the truth. Digital first arrived with the advent of computer-based editing systems more than 20 years ago, and industry people immediately began talking about the death of film. "The first time I heard film was dead was in 1972 at a TV station with videotape," says Poster, ASC. "He said, give it a year or two."
Videotape did overtake film in the TV station, but, in the early 1990s, with the first stirrings of High Definition video, the "film is dead" mantra arose again. Laurence Thorpe, who was involved in the early days of HD cameras at Sony, recalls the drumbeat. "In the 1990s, there were a lot of folks saying that digital has come a long way and seems to be unstoppable," he says.
The portion of the film ecosystem that has managed the most complete transition to digital is post-production. According to Technicolor Chief Marketing Officer Ouri, over 90 percent of films are finished with digital intermediates.
But the path to digital domination has also taken place in a world of Hollywood politics and economics. A near-strike by Screen Actors Guild actors, the Japanese tsunami and dramatic changes in the business of theater exhibition have all contributed to the ebbing fortunes of film. Under pressure, any weakness or break in the disciplines that form the art and science of film--from film schools to film laboratories--could spell the final demise of a medium that has endured and thrived for over 100 years.
THREE STRIKES AND YOU'RE OUT?
Until 2008, the bulk of TV productions and all feature films took place under SAG jurisdiction, which covers actors in filmed productions. In the months leading up to the Screen Actor Guild's 2008 contract negotiations with the Alliance of Motion Picture and Television Producers, SAG leadership balked on several elements, including the new media provisions of the proposed contract. Negotiations stalemated. Not so with AFTRA, the union that covers actors in videotaped (including HD) productions, which inked its own separate agreement with AMPTP.
"When producers realized they could go with AFTRA contracts, but they now had to record digitally, they switched almost overnight," recalls Poster. Whereas, in previous seasons, 90 percent of the TV pilots were filmed, and under SAG jurisdiction, in one fell swoop the 2009 pilot season went digital video, capturing 90 percent of the pilots. In a single season, the use of film in primetime TV nearly completely vanished, never to return.
The Japanese tsunami on March 11, 2011, further pushed TV production into the digital realm. Up until then, TV productions were largely mastered to Sony's high-resolution HD SR tape, but the sole plant that made the tape, located in the northern city of Sendai, was heavily damaged and ceased operation for several months. With only two weeks worth of tape still available, TV producers scrambled to come up with a workaround, leading at least some of them to switch to a tapeless delivery, another step into the future of an all-digital ecosystem.
He notes that the turning point was the creation of the virtual print fee, which allows NATO members to recoup the investment they have to make to upgrade to digital cinema. (Studios, meanwhile, save $1 billion a year for the costs of making and shipping release prints.)
To take advantage of the virtual print fee, theater owners will have to transition screens to digital by the beginning of 2013. "Sometime, in 2013, all the screens will be digital," says Corcoran. "As the number of digital screens increase, it won't make economic sense for the studios to make and ship film prints. It'll be absolutely necessary to switch to Digital Cinema to survive."
Can the continued production of film stock survive the twin disappearance of film acquisition and distribution? Veteran industry executive Rob Hummel, currently president of Group 47, recalls when, as head of production operations, he was negotiating the Kodak deal for DreamWorks Studios. "At the time, the Kodak representative told me that motion pictures was 6 percent of their worldwide capacity and 7 percent of their revenues," he recalls. "The rest was snapshots. In 2008 motion pictures was 92 percent of their business and the actual volume hasn't grown. The other business has just disappeared."
Eastman Kodak, Chris Johnson, Director of New Business Development, Entertainment Imaging, counters that "I don't see a time when Kodak stops making film stock," noting the year-on-year growth in 65mm film and popularity of Super 8mm. "We still make billions of linear feet of film," he says. "Over the horizon as far as we can see, we'll be making billions of feet of film."
Yet, as Johnson's title indicates, Kodak is hedging its bets by looking for new areas of growth. One focus is on digital asset management via leveraging its Pro-Tek Vaults for digital, says Johnson, and another is investigating "asset protection film," a less expensive film medium that provides a 50 to 100 year longevity at a lower price point that B&W separation film.
Kodak has also developed a laser-based 3D digital cinema projector. "Our system will give much brighter 3D images because we're using lasers for the light source," says Johnson. "And the costs of long-term ownership is much less expensive because the lasers last longer than the light sources for other projectors."
STORING FOR THE FUTURE
As more than 1 million feet of un-transferred nitrate film worldwide demonstrates, archiving doesn't get top billing in Hollywood. Although the value of archived material is unarguable, positioned at the end of the life cycle of a production, archivists have unfortunately had a relatively weak voice in the discussion over transitioning from film to digital.
Since the "film is dead" debate began, archivists fought to keep elements on film, the only medium that has proven to last well over 100 years. "Most responsible archivists in the industry still believe today that, if you can at all do it, you should still stick it on celluloid and put it in a cold, dry place, because the last 100 years has been the story of nitrate and celluloid," says Deluxe's Ainsworth.
He jokes that if the world's best physicists brought a gizmo to an archivist that they said would hold film for 100 years, the archivist would say, "Fine, come back in 99 years." "With the plethora of digital files, formats and technologies--some of which still exist and some of which don't--we're running into problems with digital files made only five years ago," he adds.
At Sony Pictures Entertainment, Grover Crisp, Executive VP of Asset Management, Film Restoration and Digital Mastering, notes that "Although it's a new environment and everyone is feeling their way through, what's important is to not throw out the traditional sensibilities of what preservation is and means.
"We still make B&W separations on our productions, now directly from the data," he says. "That's been going on for decades and has not stopped. Eventually it will be all digital, somewhere down the road, but following a strict conservation approach certainly makes sense."
Crisp pushes for a dual, hybrid approach. "You need to make sure you're preserving your data as data and your film as film," he says. "And since there's a crossover, you need to do both." LTO tape, currently the digital storage medium of choice, is backwards compatible only two generations, which means that careful migration is a fact of life--for now at least--in a digital age. "The danger of losing media is especially high for documentaries and indie productions," says Crisp.
Hummel and his partners at Group 47, meanwhile, believe they have the solution. His company bought the patents for a digital archival medium developed by Kodak: Digital Optical Tape System (DOTS). "It's a metal alloy system that requires no more storage than a book on a shelf," says Hummel, who reports that Carnegie Mellon University did accelerated life testing to 97 years.
THE DEATH OF FILM REDUX
"Though reports of its imminent death have been exaggerated, more industry observers than before accept the end of film. "In 100 years, yes," says AbelCine's Shore. "In ten years, I think we'll still have film cameras. So somewhere between 10 and 100 years."
Film camera manufacturers have walked a tightrope, ceasing unprofitable manufacture of film cameras at the same time that they continue to serve the film market by making cameras on demand and upgrading existing ones. But they--as well as film labs and film stock manufacturers--clearly see the future as digital and are acting accordingly.
Will film die? Seen in one way, it never will: our cinematic history exists on celluloid and as long as there are viable film cameras and film, someone will be shooting it. Seen another way, film is already dead...what we see today is the after-life of a medium that has become increasingly marginalized in production and distribution of films and TV. Just as the last film camera was sold without headlines or fireworks, the end of film as a significant production and distribution medium will, one day soon, arrive, without fanfare.
Thursday, October 27, 2011
Monday, October 24, 2011
Monday, October 17, 2011
This is a thirty second teaser I put together for PHX. Andrew House, the film's editor, will have a proper trailer, but it will be another month or two. We're trying to finish the first assembly before we dive into the trailer, to make sure we've seen the whole film and can, then, make an informed decision on what we want to put in the trailer. Hope you enjoy it.
Sunday, October 2, 2011
Thursday, September 29, 2011
Friday, September 23, 2011
Saturday, September 17, 2011
Wednesday, September 14, 2011
Monday, August 29, 2011
Sunday, August 28, 2011
Tuesday, August 23, 2011
Sunday, August 14, 2011
Friday, August 12, 2011
Blast! Director Paul Devlin on the IRS’s battle with documentary filmmakers.
Last year at a summit meeting of the independent film community called “The Conversation,” Ira Deutchman was compelled to propose, “Filmmaking has never been a business…it’s a hobby.” Sentiments like this are not uncommon after the hardships filmmakers have faced in recent years, the multiple threats to our business models that accompanied both technological change and the global economic crisis. In fact, many filmmakers have been forced to re-evaluate the economic viability of their entire enterprises.
Soul-searching in tough times is important, but our community must be extremely careful with our language and avoid using words like “hobby.” Why? Because the IRS is listening! If you are deducting filmmaking expenses from other sources of income on your tax returns, then you must identify your filmmaking as a for profit business and not a hobby.
Documentary filmmakers have become especially vulnerable to the perception that they are engaged in a hobby rather than an activity for profit. Because development takes so long and revenue sources are so difficult to sustain, filmmakers often endure losses over many years. They persevere because they become so passionate about their subject matter and the need to spread their message to the world that generating a profit may not seem primary.
Unfortunately the unfair and incorrect perception that documentary filmmakers are not interested in profit has resulted in unsettling scrutiny of our industry by the U.S. Internal Revenue Service. In a case now in U.S Tax Court in Arizona, the IRS has been asked to demonstrate whether or not the primary purpose of documentary filmmaking in general is “to educate and to expose” and is thus “an activity not engaged in for profit.”
This may sound absurd, but it is very serious. If the IRS wins their case against Arizona filmmaker Lee Storey (Smile ’Til It Hurts: The Up With People Story), documentary filmmakers may no longer be permitted to deduct expenses associated with making their films from other sources of income. Furthermore, filmmakers who have already deducted these expenses may be faced with potentially ruinous audits.
Storey is a practicing attorney in Arizona who made her debut feature after she learned that her husband was secretly a former member of the singing phenomenon Up With People. According to LA Weekly, Smile ’Til It Hurts: The Up With People Story “is a withering critique of the organization’s religious cult roots [and] right-wing political subtext” while still being respectful of the fact that members found “a way to affect positive, even progressive, change in the world.” The award-winning movie screened to enthusiastic reviews at Docuweeks, Slamdance, Full Frame, Big Sky, Michael Moore’s Traverse City fest and the Florida Film Festival, among others.
In 2010, the IRS audited Storey. She had set up an LLC for her filmmaking, but the IRS determined that her filmmaking activity was not engaged in a profit-making enterprise. As a result, business deductions associated with her film over three years were disallowed. The IRS determined that she owed the government more than $300,000 in back taxes, penalties and interest. She has appealed and is now in an expensive, drawn-out battle to demonstrate the profit motive, not only of her own filmmaking activity, but that of all documentary filmmakers.
In recent weeks, the documentary community has mobilized, realizing the devastating potential of Storey’s case. My own experience with a recent IRS audit makes me know that this threat is all too real.
The business of nonfiction filmmaking in the U.S. has become ever more competitive, speculative and entrepreneurial. Often even veteran filmmakers are expected to have significant portions of their films completed to demonstrate merit before funders will participate. As a result many filmmakers are investing substantial amounts of their own money to get their films off the ground.
This investment can stretch over many years as the project develops. During this time costs absorb revenue so there is little opportunity to profit until the project is complete and sales can be made. Deducting losses during the development period from other sources of income to reduce personal income tax can help ease the financial burden facing independent filmmakers.
The IRS has no problem with a taxpayer deducting expenses for an activity from the income of that activity, even when the activity is considered a “hobby.” However, when expenses from that activity create losses that offset other sources of income (such as income from a “day job”), the IRS requires that the taxpayer be able to demonstrate that it is “an activity engaged in for profit.”
Last year, the IRS audited my 2007 and 2008 tax returns. After conducting two arduous interviews lasting many hours each and combing through my meticulously well-documented financial records, the IRS revenue agent determined that my own documentary film business was “an activity not engaged in for profit.” This is the euphemism the IRS uses for “hobby.” Although he cited several factors, many years of losses provided the primary basis for his determination.
The agent’s report disallowed all deductions that resulted in losses for 2007 and 2008. I was going to owe up to $80,000 in back taxes and penalties to the U.S. and New York State governments. Moreover, this meant I would not be able to deduct most of my business expenses for 2009 and 2010. I was not only being put out of business, my personal financial well-being was threatened.
I was outraged. Filmmaking was my pasttime? Clearly, the agent had no idea how much work goes into making an independent film. I did my best to describe the grueling shoots in far away places, the all-night edits, the endless fundraising and marketing, and the constant efforts to sell, sell, sell. Did he really think I had no interest in making money?
My entreaties had no effect. The agent had made up his mind. He insisted that my filmmaking was an activity not engaged in for profit and my tax deductions over the years were, therefore, not legitimate. I owed the IRS big-time.
As a matter of survival, I had to become an expert on the IRS “hobby loss rule,” consulting with lawyers and accountants and doing my own research to challenge the revenue agent’s determination. Otherwise I would not be making independent films again.
Stuart Wolff, a tax preparer who works with many independent artists in New York, advised me that I needed to better separate my filmmaking income from my personal income. Years ago, I had moved away from a Sole Proprietorship, which provides almost no separation. A C-Corporation is designed for large companies and does not allow the flow-through of losses and profits to a personal tax return. The best choice for independent filmmakers is either a Limited Liability Company (LLC) or an S-Corporation.
Wolff recommended that I dissolve my Limited Liability Company (LLC) and set up an S-Corporation. “Technically, an LLC is a separate entity, but it gets filed under your personal tax return using a Schedule C. So you risk the perception that the business is not separate from your personal activity.” He explained that an S-Corporation requires a completely separate tax return. Of course, filing an additional return costs more money if you are paying a tax preparer, and there are no guarantees that the IRS will not also audit an S-Corporation. But the S-Corporation has the advantage that you can still carry over business losses and profits to your personal tax return, while more clearly delineating your business activity with a separate filing.
Creating a more defined separate business entity with an S-Corporation might help me for the future, but not for the returns I filed as an LLC that were now being audited. For more help, I turned to Richard C. Antonelli, a tax lawyer with offices in New Jersey and New York. Now in private practice, Antonelli spent 15 years working for the IRS as a revenue agent, appeals officer and then as an attorney litigating cases in tax court.
“It’s a common misperception that multiple years of losses automatically indicate that your activity is a hobby rather than a business,” Antonelli told me. “In fact, the IRS guidelines focus on the inverse: if your business is profitable three out of five years, then you have what’s called “safe harbor,” a presumption by the IRS that your business is an activity engaged in for profit, even though you may have had some years of losses.”
But what if I can’t demonstrate even that much profitability, just losses in the past five years? Is my case hopeless?
“Not at all,” Antonelli assured me. “In fact the IRS guidelines for revenue agents specifically state that not meeting the presumption rule cannot be the sole basis for disallowing losses. Determinations must be made on a case-by-case basis using nine factors.”
I searched online for the IRS guidelines and became an expert on the nine factors used to decide “whether a taxpayer operates an activity with an actual and honest profit motive”:
• the manner in which the taxpayer carried on the activity,
• the expertise of the taxpayer or his or her advisers,
• the time and effort expended by the taxpayer in carrying on the activity,
• the expectation that the assets used in the activity may appreciate in value,
• the success of the taxpayer in carrying on other similar or dissimilar activities,
• the taxpayer’s history of income or loss with respect to the activity,
• the amount of occasional profits, if any, which are earned,
• the financial status of the taxpayer, and
elements of personal pleasure or recreation
As I researched, I became reassured. When applied to my filmmaking, these factors clearly indicated that mine was “an activity engaged in for profit.” I kept careful records, had expert advisors, spent more time making my own films than at my day job, etc. Also reassuring was the fact that no single factor or combination of factors was conclusive. The IRS guidelines gave the example that “if five factors say the activity is not for profit, but four are on the profit side, the activity still could be determined to be engaged in for profit.” Although based on facts, a determination was essentially subjective.
Antonelli pointed out that the IRS gives much recourse to taxpayers not in agreement with a revenue agent’s report: “The first step is to set up a meeting with the agent’s supervisor. If the supervisor doesn’t see it your way, then we appeal. The appeal may take up to a year. And if an appeal is not successful, we take the case to tax court. But hopefully it doesn’t go that far.”
No kidding! That would be an expensive, exhausting ordeal. My goal was to win right out of the gate and convince our revenue agent’s supervisor.
Armed with my new understanding of the law, I sat down with my office to make our case. We created an exhaustively documented report of more than 50 pages, using the nine factors as guidelines to substantiate with facts why our business was an activity engaged in for profit. I read the opening summary out loud at the meeting with the revenue agent’s supervisor and my tax preparer, Stuart Wolff.
The supervisor was sympathetic and our report was hard to refute. However, she was not completely convinced. After an impressive presentation of all the accoutrements of our profession, with an emphasis on the moneymaking efforts, she smiled and commented casually, “This is great. You like making films don’t you?” “Of course I do,” I responded, relieved at making a more personal connection. “It’s a lot of fun.”
Wolff gave me a sharp look and I realized with dread that I had made a potentially fatal error. The last of the factors is “elements of personal pleasure or recreation.” I changed tone immediately, “But sometimes I hate how difficult it can be — shoots that go on indefinitely, wading through hundreds of hours of footage can be sheer drudgery, the pressure of 20-hour editing sessions to make a deadline has adverse effects on my health and the travel can be wearing, weeks away from friends and family. It’s a really tough job.”
I had regained my footing and shifted direction. “But the sacrifice is worth it because the potential pay off is huge. My friends Annie Sundberg and Ricki Stern just grossed close to $3 million with their movie about Joan Rivers, A Piece of Work. Morgan Spurlock had no idea Super Size Me was going to be such a huge hit when he started making films. And look at Michael Moore! His documentaries have earned close to $200 million at the box office. I’ve leaned my lesson. My next film is my most commercial project yet. It could be the next documentary blockbuster!”
Phew — that was more what she wanted to hear. I was indirectly referencing what I nicknamed the “wildcat oil well principle,” based on an example the IRS uses to illustrate this guideline: “…an opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated.”
What better description of the film industry? Even for the major studios, it’s the occasional blockbuster that earns “substantial ultimate profit” and sustains the vast majority of films, which are financial failures. My model was similar except that as an independent, I could make only one film at a time, over the course of several years. When that blockbuster arrives, however, it will justify all the money losers in my “highly speculative venture.”
The supervisor was still concerned about the many years of losses. However, our report, the description of the film industry business model and my honest interest in making a profit appeared to be convincing. Several weeks later, I received notification that the original revenue agent’s determination had been overturned. I was, in fact, engaged in an activity for profit. My business expenses would be allowed and I owed only a minor amount in back taxes. I had dodged a devastating bullet.
Like any filmmaker, I was called upon by the IRS to prove the profit motive of my individual film practice. Storey’s case in Arizona, however, has much broader implications for all documentary filmmakers.
In Storey’s case, the U.S Tax Court in Arizona is ruling not just on whether an individual filmmaker is engaged in an activity for profit. Judge Diane Kroupa has decided to rule on whether documentary filmmaking in general can be compatible with a profit motive when its primary purpose is “to educate and to expose.”
Certainly many of us can think of enterprises in which the main mission is “to educate and to expose,” while still making a profit. Regardless, the U.S Tax Court in Arizona seems determined to target aggressively all documentary filmmaking as an activity not engaged in for profit. If this opinion is memorialized in a ruling against Storey, documentary filmmakers may no longer be able to deduct business expenses associated with filmmaking from other sources of income. It is very likely I would have lost my case if this precedent had been set prior to my audit.
Even more disturbing, if Storey loses her case, is the possibility that documentary filmmaking in general could become a “red flag” for IRS agents. The precedent could provide incentive for individual IRS agents to audit any documentary filmmaker who has ever reported losses going back three years (or more, depending on the circumstances). This could produce a profoundly destabilizing outcome for the documentary community. Even a successful defense is costly, distracting and intimidating.
Storey insists that she was very motivated by potential profit from the project’s inception: “The movie has a built-in target of 20,000 Up With People alumni, performing to 3,600 worldwide communities, 20 million viewers, and staying in 450,000 host families, not to mention annual hoopla over their four Super Bowl halftime shows. There is a huge, clearly defined core audience that any filmmaker would envy.” Still the IRS is claiming there was no profit motive in the making of Smile ’Til It Hurts.
Like mine, Storey’s case is strong for most of the nine criteria. So the IRS has focused on the final one, “elements of personal pleasure or recreation.” Regarding her filmmaking, Storey admits, “Yep, I love it and the IRS is using clips of me on You Tube saying how much I enjoy making films. That doesn’t mean it isn’t hard work or that I love every aspect of documentary filmmaking. I told them at trial that I also love my law job, which I do! Why can’t you like what you are doing and make money too?”
The sad irony is that the IRS’s case against Storey may make it impossible for her to profit from her movie. In fact, it could force her into personal bankruptcy. “I’ve spent a fortune because the IRS made me go to trial. And it isn’t over. There may be appeals, and the IRS may come after me for 2009 and 2010 also even if I win. Why? The IRS attorney here in Arizona said: ‘Because we can.’”
Aware of the broad implications of Storey’s case, The International Documentary Association (IDA) has assembled a coalition of organizations and prominent individual filmmakers to provide advocacy. Michael Lumpkin, executive director of the IDA, recently posted on the IDA website:
To support Storey, IDA has filed an amicus brief in the case urging the U.S. Tax Court to recognize that the production of a documentary film is, at its core, a “for profit” business such that business expenses are deductible for tax purposes.
By doing so we hope to ensure that all filmmakers receive the respect they deserve, and that the many sacrifices they make in the pursuit of their art and livelihood will not be made in vain.”
Entertainment attorney Michael Donaldson works on a pro bono basis with the IDA on its many advocacy efforts and filed the brief on their behalf. According to Donaldson, “The Storey case is one that could have ripple effects across the entire independent film community, which is why we stepped in.”
A glimmer of good news is that if Storey wins her case, it could set a precedent that works in favor of our industry. This has made Storey a de-facto defender of all documentary filmmakers. To support her cause, you can visit smiletilithurts.com and contribute to Storey’s legal defense fund or buy a DVD of her film.
So why is the IRS targeting documentary filmmakers so aggressively, while huge corporations seem to get a pass? It’s not like we have a whole pile of money to hand over. Conspiracy theorists might look with raised eyebrows at this issue alongside other legal controversies coming out of Arizona. Perhaps documentary filmmaking is being targeted precisely because the primary mission assigned to it by Judge Kroupa, “to educate and to expose,” is threatening to those in power.
But Antonelli offers a more mundane explanation. “When the IRS becomes aware of possible tax abuses in certain industries, whether it’s through their own audits or from third party information, they will focus on that industry to generate revenue and to encourage compliance.” The problem is that taxpayers who do not abuse the system get caught in this web. Moreover, those with limited resources who cannot afford proper representation may become easy targets. As Antonelli points out, “Unfortunately, there are some in the IRS who will take advantage of the pro se [without an attorney] taxpayer.”
On the other hand, there may be an upside to all of this. My audit focused my office’s attention on how we run our business. As a result, our bookkeeping improved and we became more aware of how we spend our time. We streamlined communication, implemented more professional practices, such as making revenue projections, and we examined expenditures more carefully and made efforts to reduce them. New projects are now evaluated on their likelihood to profit, not only on how passionate we feel about them. The IRS ordeal may force documentary business models like mine to mature.
Perhaps it is even possible that we, as a community, will look back on this moment and decide that the IRS has done documentary filmmaking a major service. The industry expectation that documentary filmmakers are willing, even happy, to accept major, ongoing financial losses to get our films made and seen has become institutionalized in recent years. The IRS has now given us all official notice that this model is not sustainable and will be challenged aggressively. In order to maintain a steady stream of high-quality content, our industry will be forced to create a new paradigm that compensates filmmakers fairly so that we have reasonable expectations of profiting from our work. With the IRS looking over our shoulders, filmmakers will need to insist on this.
The alternative is that many of these valuable films will cease being made. It will no longer be viable for independent documentary filmmakers to initiate and sustain them speculatively with personal finances. And if that is the outcome, we will all be the poorer for it.
At the very least, never again should any of us refer to our filmmaking as a hobby.
Paul Devlin’s next film is a romantic music-comedy titled Super Star Dumb. Details at devlinpix.com