Film Fund-amentals: Seconding the Proposal

 First published October 25, 2011

According to the IRS, filmmaking is a hobby, not a business. Or at least that is the stand the IRS has taken against filmmaker Lee Storey in its attempt to collect $300,000 in alleged back taxes concerning business deductions she attempted to take from her documentary Smile ‘Til It Hurts.

The Storey case made lots of headlines within the indie trade last summer when Judge Diana Kroupa of the US Tax Court in Arizona ruled that documentary films were made to “educate and expose” and did not serve as a profit-making business. Since the core argument being made by both the IRS and Judge Kroupa is that filmmaking is not a for-profit enterprise, Storey (and any other filmmaker out there) is not entitled to the many business deductions available to any business (especially small businesses) attempting to stay afloat.

Storey’s case is still pending, and she is currently being supported by an amicus brief filed by the International Documentary Association, Film Independent, National Association of Latino Independent Producers, Women Make Movies, National Alliance for Media Art and Culture and the University Film and Video Association. The Storey case is extremely important simply because the IRS seems determined not only to strip various important business deductions away from indie filmmakers, but also to add insult to injury by reducing the whole field to a backhanded status that resembles stamp collecting. Though the “educate and expose” claim made by Judge Kroupa refers to the perceived function of documentary filmmaking, the full ramifications of the IRS case affect every form of movie making.

Despite what the IRS thinks, filmmaking is a business. OK, it is often not a very profitable business. I seem to recall that Spike Lee once speculated that selling tube socks on a street corner could be more profitable. At best, filmmaking is an extremely uneven business with a few highs and a lot of extreme and dismal lows. The process is virtually designed to break your heart forever as the business devours egos with the mindless enthusiasm of a hungry shark at a swim fest. This is why filmmakers really don’t need the IRS coming around to tell them that they are a bunch of losers (well, that is one result of this “hobby” theory they are pedaling).

For now, the case is still pending (a reminder that the obvious mascot for the court system should be a snail, not a half-naked lady with a sword and scale). But the effects are still being felt in countless blog pieces as folks in the indie business (yes, it is a business) find themselves reflecting on the particular nature of this business (yep, I am going to keep using that word in hope that the IRS notices the direction I am trying to steer it in). A few months ago, Ted Hope did an interesting breakdown on what kind of money an indie producer can make. The piece is extremely informative but a tad depressing, since selling tube socks on a street corner may indeed be more profitable (depending on the corner). But hey, I didn’t say it was an easy business. Heck, if it were an easy business it would be more like a hobby, right?

But what I have really been struck by is a recent blog piece at the Huffington Post by Josh Welsh, the Director of Artistic Development at Film Independent. Entitled Studying the Economics of Independent Film: A Proposal, Welsh’s article correctly zeros in on the lack of business data available in regards to indie filmmaking. Heck, many hobbies have more business data than indie filmmaking does (especially the people who do model trains).

I strongly urge anyone involved in the indie business to read Welsh’s blog piece. Even more important, I very strongly urge the pursuit of the type of study that Welsh proposes. It isn’t just the question of the IRS and crazy statements made by a judge in a tax court. The study that Welsh is suggesting would be an invaluable report for indie filmmakers. It would actually take the vast and nebulous state of indie film financing and create a clear and precise structure for the field. In other words, it would be a solid way of finding out just what the heck is going on out there.

However, I have a few suggestions for the study. Welsh is quite aware of the difficult nature of defining the phrase “independent movie.” These days, the term is only half-relevant, since almost all movies are technically “independent.” But for the purpose of this study, the field can be easily narrowed down by the budget. Basically, we would be looking at any movie made for a production cost of $20 million on down. If we wish to be a real hard case on the subject, then $15 million on down.

The parameters for the study would need to focus on a defined time period. Due to the rapidly shifting realities of current economics as well as radically changing distribution structures, the study would be best advised to focus on the most immediate past several years. Let’s say indie films made between 2008 and 2010. Likewise, titles should be selected on the basis of their release dates within these parameters. Production dates for certain indie movies can go on for a while, but the release date is when the movie is put into play and should be usable as the target for the study.

Welsh’s suggestion to use the list of entries at the Sundance Festival is half OK. Sundance is a major clearinghouse for titles. But it also has a system that too often weeds the selections down to a much too narrow range for the purposes of this type of study. A combination of titles from both Sundance and Slamdance would present a more diverse (and ultimately better) sample. It might also be useful to mix in titles from that same time period from the IFC cable system.

Then we would have to narrow the process down to the key variables needed for the study. Oh, did I mention that it would be very helpful if we got somebody to bankroll this project? Maybe the IRS? They seem to have a vested interest in the subject….