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Is an IRS Crackdown Targeting Documentarians?

Writing for Filmmaker magazine, the documentary director Paul Devlin (BLAST!) discussed the experience he and other filmmakers have had lately with IRS audits. Essentially, tax collectors have been asking documentary filmmakers to make the case that their films — which often end up being money-losing propositions due to the current climate for distribution and exhibition — are a business endeavor and not just an expensive hobby. One of the lessons Devlin has learned is that it doesn’t pay to let on that you’re too enthusiastic about your passion projects. If the IRS determines that you’ve become a filmmaker “to educate and to expose” rather than out of a profit motive, you could find your creative work downgraded to “an activity not engaged in for profit.” That means that any losses you may have claimed against other income on your tax return are voided. You could end up owing enough in back-taxes to put you out of business as a filmmaker permanently. Devlin remembers his feelings well.
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?
The full story, which includes some advice for other filmmakers who may be put in the position of defending their unprofitable films as a legitimate business endeavor, is lengthy but well worth reading. www.filmmakermagazine.com/news/2011/07/why-filmmaking-cannot-be-a-hobby/.

8 Comments

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  • http://www.micasamm.com Robert Margouleff

    I am the director and producer of Tall Ships : The Privateer Lynx. This is EXACTLY what happened to me. They wanted $35,000 because they called it my hobby. I had to go down to the IRS and plead my case and PROVE that it was a profit making venture. I ended up paying and additional $12,000. I though I got away cheap. Be very careful and make sure you can prove your profit making motives.

  • brainburst

    I’m sorry, but hard work, passion and suffering do not equate to film making being a business proposition unless you can demonstrate a reasonable likelihood of profitability.
    The author of the referenced article does not make the case for documentary as primarily a business venture.

  • Christopher Toussaint

    Its more broad than this article states. I should know. I am a doc filmmaker who’s been audited and so have been many of my fellow documentarians, including some distributors, who do peace and anti war, New World Order or other exposes of the U.S. federal government’s illegal and violent tactics and coverups.

  • John

    IMO, this situation appears to be an excellent subject for a documentary.

    Also, if the assertion that “demonstrating a reasonable likelihood of profitability” is what determines whether or not a film is a business proposition, then the IRS is missing a golden opportunity. Considering that the movie/TV industry is notorious for “creative” bookkeeping procedures that indicate most movies/TV shows are not profitable. The major studios are much bigger (read: wealthier) targets than documentary filmmakers.

    Hell… if MGM’s motto is taken at face value, then clearly that studio was never in the movie “business.” It was in it for “art”.

  • http://seanfx.com Sean McMenemy

    This is a perfect example of why filmmakers and producers need to push iTunes, Amazon, YouTube and Netflix just to name a few to make it easier for Independent film to be uploaded, distributed and get PAID for through digital means.

    I’m always reading stories about films I’d like to see but by the time they come out in a format that I’m willing to view it on or the filmmaker waits for the right deal to come along the film is long forgotten about.

    Currently these online players are mostly built around the big blockbuster or Hollywood machine. Most files file sizes for online movies will fit on any smart phone so I don’t believe storage is an issues it’s the placement and easy search and selection of content that would help the independent film maker make a profit.

  • Jay

    The question I must ask is if you are a film-maker. Is this your only source of income. The IRS is pretty knowledgable regarding income. If you are claiming an income from another source and then use your loss on your documentary to offset that, then the IRS has a pretty good argument. I know a number of “film makers” whose companies are questionable. Are you incorporated, do you have a payroll or do you just take draws from the company. Have you actually set your company up with an accountant and can demonstrate an actual operation. The IRS is not establishing profitability, they are determining whether it is a business and then subsequently legitimate.

  • Crazy Dayz

    Film makers are only in it for the money. Greedy bastards… Documentarians need to pay their fair share.

  • Rigoberto Tovar

    The next step is to put a tax in Little League baseball games, because that activity made more money that many documentaries will ever do. There are hundredths of hobbies that should be taxed (boating, music listening, dances, birthdays, etc, etc). Any thing before the sacred right to information thru film being curtailed by the money making probability of short movie realization. If those become a money making success, they should pay its fair share otherwise IRS should look to the other side and try it like a fail biz. More Non-profit organizations make more money for advertising and personal pleasures that any instructive film will ever do.

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