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Wealth Without Riches

The more jaded members of the factual film community might argue that the entire doc industry operates on a not-for-profit basis. Contrary to this opinion, factual prodcos must actually choose nonprofit status - a move that allows them to tap into funds earmarked for nonprofit entities by foundations, corporations and private donors.
September 1, 2003

The more jaded members of the factual film community might argue that the entire doc industry operates on a not-for-profit basis. Contrary to this opinion, factual prodcos must actually choose nonprofit status – a move that allows them to tap into funds earmarked for nonprofit entities by foundations, corporations and private donors.

To become a nonprofit in the U.S., filmmakers have two options: partner with a nonprofit, tax-exempt organization – called a 501(c)(3) by the Internal Revenue Service – or become nonprofits in their own right. Either way, producers must prove their film is non-commercial and educates the public on a useful subject. The stipulations are as broad as they seem – anything from a surfing doc to a study of mosquitos can qualify.

When Sharon Baker, president of Wilmington, U.S.-based prodco Teleduction, decided to start a nonprofit, her peers were dubious. ‘People thought I was crazy,’ says Baker of her 2002 venture, Serviam Media (projects include With All Deliberate Speed: The Legacy of Brown v. Board and Las Polleras: Hope in America). ‘They didn’t understand that being a nonprofit doesn’t mean you can’t make a salary and cover your expenses. It means you don’t have money left over to disperse to stockholders.’

In other words, as a nonprofit a prodco can build assets (such as a stock footage library), but it cannot derive any equity. ‘When I retire I won’t have a company to sell or anything of value after a lifetime of work,’ explains Bill Mosher, the founder of Visionaries, a Sheffield, U.S.-based nonprofit that produces The Visionaries, a public TV series about philanthropists. He adds, ‘But, nobody is involved in the organization because they want to get rich.’ (Producers can sell to both public and private broadcasters, as long as any income is invested in the nonprofit mission.)

What 501(c)(3) status does offer is important tax breaks. Explains Kent Seton, the director of the Center for Non Profit Creation, a Los Angeles-based firm that helps companies acquire tax-exempt status: ‘[As a 501(c)(3)] you are exempt from taxation on the federal level and, assuming you qualify under state law, on the state level too.’ In some states, property taxes are also excluded, which can add up to huge savings for indies with large facilities. Add to that the biggest benefit – funding from organizations and foundations that, under law, can’t give money to for-profits – and the perks become clearer still.

One more advantage: filmmakers don’t have to start from scratch financially with every new project. According to Seton, an excess of revenues from one project can be used to fund another, as long as the project is charitable (i.e., educational) in nature. Serviam uses its surplus to, among other things, fund seminars. (Should nonprofit filmmakers find themselves with a box-office hit, the IRS determines how much compensation is reasonable for the doc-maker to receive, based on what’s customary in the industry.)

But, getting 501(c)(3) status can be a lengthy process. A prodco files with the Secretary of State’s office in its home state for nonprofit status. To become tax-exempt federally, it must submit materials to the irs detailing every aspect of its company, such as what kind of films it will make, how the films will benefit the public, budget breakdowns, etc. The cost is minimal – US$250 to $750 for filing fees – but approval can take between three months and a year.

There is an alternative to seeking 501(c)( 3) status: partnering with a nonprofit fiscal sponsor. New York-based Pine Street Productions’ Chai Vasarhelyi and Hugo Berkeley went this route for their doc A Normal Life (about Kosovo’s youth adjusting to life without war), by teaming up with Film Video Arts, also in New York. ‘If a foundation decided to fund the film, they made a grant to fva, which held the money as a 501(c)(3). We then paid out of that account,’ says Berkeley, who notes partnering with fva took only weeks, but finding foundation grants took close to a year. Donors, in return, can write off the donation on their taxes.

The drawbacks? Fiscal sponsors charge a fee for their services – as high as 20% – a good reason to choose a sponsor carefully before committing.

About The Author
Daniele Alcinii is a news reporter at realscreen, the leading international publisher of non-fiction film and television industry news and content. He joins the rs team with journalism experience following a stint out west with Sun Media in Edmonton's Capital Region, and communications work in Melbourne, Australia and Toronto. You can follow him on Twitter at @danielealcinii.

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