A lawyer faced a challenge from IRS as she sought to deduct losses during the six years for she worked at making a documentary film, "Smile Til It Hurts: The Up With People Story." IRS claimed the long series of annual losses indicated that her filmmaking activities were a hobby, pointing out that since her husband once was a member of the musical group Up With People, the project was a sort of high-cost home movie.
Furthermore, at one point during hearings, the judge reviewing the case suggested that documentary filmmaking is by nature not-for-profit — a musing that got the film industry (and its lawyers) concerned about the tax treatment of their whole industry. A number of well-known filmmakers filed friend-of-court rulings to say, in essence, that you can
make money with documentaries.
Ultimately, the court ruled in her favor, allowing her deduction of six-figure losses. It noted that she acted in a businesslike manner, hiring staff such as a bookkeeper, buying insurance, consulting experts, changing the story line to make the film more marketable, blogging about it
, and taking it on tour to movie festivals.