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February 25, 2013

Tax Court rules against filmmaker

For her next #movie topic, Lee Storey might consider #Tax Court.

Hot on the heels of Oscar night, a U.S. Tax Court judge on Monday rejected Storey's bid to be reimbursed legal and administrative costs after prevailing in an earlier dispute with the Internal Revenue Service.

In that earlier decision issued last April, closely watched in the documentary film community, Tax Court Judge Diane S. Kroupa ruled in favor of Storey's bid to write off losses from her film work even though she lost money for six straight years. Despite the string of losses during Storey's work on the documentary  entitled “Smile ‘Til It Hurts: The Up With People Story," Kroupa ruled that Storey was engaged in the business for profit and could write off production costs.

After beating the IRS on the core issue, Storey then sought reimbursement for about $160,000 in administrative and legal costs. On Monday, Kroupa concluded that Storey was ineligible because she had failed to seek administrative relief before suing. Moreover, the judge reasoned that though the IRS had lost in the earlier trial, the agency's position was "substantially justified."

So the same judge that rules against the IRS on the merits also rules that the agency's position was "substantially justified;" how does that work?

"The Commissioner’s position may be incorrect yet nevertheless substantially justified if a reasonable person could think it correct," Kroupa explained, adding that the IRS "presented facts supporting his position that petitioner’s primary objective in conducting her film activity was not to make a profit. And respondent’s arguments with respect to this highly fact-intensive issue were reasonable."

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mike

"Suits & Sentences" is a legal affairs blog written by Michael Doyle, a reporter for McClatchy's Washington Bureau. He was a Knight Journalism Fellow at Yale Law School, where he earned a Master of Studies in Law; he also earned a Masters in Government from The Johns Hopkins University with a thesis on the Freedom of Information Act. He teaches journalism as an adjunct instructor at The George Washington University's School of Media and Public Affairs.

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