Storey v. Commissioner T.C. Memo.

2012-115 (2012)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

P produced a documentary film entitled 'Smile 'Til It Hurts: The Up With People Story' (Smile 'Til It Hurts). Smile 'Til It Hurts considers the history of Up With People as a response by the religious movement Moral ReArmament to the liberal counterculture of the 1960s. It further addresses changes to the group, its evolving historical, political, and financial context, and its effects on individual members. P was married to an Up With People singer. P is of Cherokee descent and grew up in Michigan, where she was a blue-collar worker at Ford Motor Company. P received a Juris Doctor from the University of California, Berkeley, School of Law in 1987. P is the primary wage earner in her family. P was a name partner in her law firm, Moyes Storey Ltd. P became a partner in the law firm of Ballard Spahr LLP, where she leads the water law practice. P earned a substantial income from her law practice during the years at issue, totaling over $1 million. P has directed theatrical productions in high school and maintained her involvement in the theater even during law school. Petitioner directed and produced musical productions from 1998 through 2003 for a nonprofit organization she chaired. P has two adult children and four grandchildren. P began to educate herself about filmmaking. P took a sabbatical from her legal work to attend the New York Film Academy's (NY Academy) one-month filmmaking program to obtain hands-on experience. P also took filmmaking classes, including editing and DVD authorizing, at Scottsdale Community College. P negotiated the rights to all of the archival footage of Up With People and then obtained the rights to Moral ReArmament's archival footage, both before the years at issue. She hired Ryan McCoy, a video production company owner who she met at the NY Academy, as a camera operator in 2004 to film interviews that P conducted with Up With People alumni at a group reunion. With archival footage and some interviews under her belt, P's filmmaking journey was underway. P worked nights and weekends and taking off weeks as needed, to pursue her filmmaking journey. P spent an enormous amount of time producing Smile 'Til It Hurts. She ultimately conducted 400 hours of interviews. P hired a professional research firm to assist with forensic accounting research. She produced a 30-second promotional pitch and a trailer for Smile 'Til It Hurts in 2006 that was distributed in a packet with advertisements regarding P's filmmaking team. P attended the Sundance Institute's Independent Producers Conference (Sundance Conference). Smile 'Til It Hurts was 'called out' during the Sundance Conference as a viable product with a timely and timeless topic. P completed the entire project in 2008. Mr. Storey's participation in the final version of the film lasted less than 4 minutes out of the total of 79 minutes. P conducted screenings of the Smile 'Til It Hurts 'rough cut' in test markets to identify necessary improvements to the film. She and her team revised the film using feedback from the screenings. P completed the final cut of Smile 'Til It Hurts in December 2008 and launched it the next month. She also produced a foreign version at the request of her publicist that is 25 minutes shorter than the regular version and principally sold to foreign television markets. P created a website at www.smiletilithurts.com with an attached blog linked to social networks. P began actively marketing Smile 'Til It Hurts by attending film festivals selected by consulting her sales agent. Some of these included the Big Sky Documentary Film Festival, the Sedona International Film Festival, the Wisconsin Film Festival, the Tribeca Film Festival Documentary Series, and Michael Moore's Traverse City Film Festival. P received some recognition and was approached by at least two organizations and an individual about producing additional documentary films. P retained a publicist and marketing firm Films Transit to guide her during the film's 'rollout' at the beginning of 2009. P organized Storey Vision, LLC (Storey Vision), an Arizona limited liability company, in September 2005. Petitioner was the sole member and manager. P established a checking account, a savings account, and a credit card for Storey Vision, each separate from any personal accounts. P created formal projections and financials for the company. Wells Fargo Bank, N.A. granted to Storey Vision a $250,000 business line of credit in 2007 that it renewed twice. Grammercy Investments, LLC granted to Storey Vision a $75,000 loan in 2007 as well. An individual, Ross Wilson, made a $125,000 loan to Storey Vision that year and renegotiated it years later. Petitioner has repaid some of these obligations from her personal funds and is responsible for the financial investment made in Smile 'Til It Hurts. P hired a bookkeeper and retained the services of an accounting firm. The IRS (D) then issued a deficiency notice for the years at issue. P appealed.