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Cinefamily / Fairfax Cinema Keep Missing Legal Deadlines

Both Cinefamily and Fairfax Cinema appear to have recently missed yet more legal deadlines, compounding damage to donors, staff, and the public.  It is not clear if the blown deadlines result from incompetence or from an active flouting of the law and standards.  In any event, the latest series of gaffes from Dan Harkham (owner of Cinefamily and Fairfax Cinema) and Erin Hensley (Cinefamily's accountant and Fairfax Cinema's managing director) fit a broad and ongoing pattern that leaves donors and staff in the lurch, and keeps the public in the dark.

I. Cinefamily as Charity: Donation Receipts

In their November 14 statement, Cinefamily announced "donations will be acknowledged with forthcoming tax receipts."  Donor contributions must be recognized in a timely fashion.  According to the finance experts at the balance:  

balance tax receipts.JPG

As far as I am aware, no such receipts have been provided.  (I have not received a receipt; other donors have reported not receiving receipts; no donor has reported receiving a receipt.)

Under IRS rules, Cinefamily is subject to even more strict requirements because donors get access to screenings through quid pro quo contributions:

IRS quid pro quo.JPG

Upshot for donors: according to the IRS, you may be unable to claim tax deductions:

deduction requirement.JPG

Upshot for Harkham, Hensley, and Cinefamily: the IRS warns of significant penalties:


II. Cinefamily as Employer: Tax Forms

The IRS and the state EDD require Cinefamily, like any other employer, to provide tax forms in a timely manner: either W-2s (to employees) or 1099s (to independent contractors).  Again, January 31 is a firm deadline, and Cinefamily may be subject to financial penalties for each failure.  (Each missed W-2 or 1099 is a separate failure.)

Several former 2017 staff report still not receiving their tax forms, a seemingly clear violation.  (I am unaware of any staff who have received tax forms.)*  Staff should attempt to contact Hensley or Harkham, or the state Franchise Tax Board.  (Keep in mind any purported exception related to bankruptcy or dissolution would not apply, as Cinefamily has not filed for either bankruptcy or dissolution, and is an ongoing legal concern.)

III. Fairfax Cinema's Legal Stumble Out of the Gate

As we reported earlier this year, Harkham filed the legal Registration for Fairfax Cinema a month before announcing the planned dissolution of Cinefamily.  (Despite the public statement, no dissolution has taken place or even been attempted.)  The California Secretary of State requires that, within 90 days of filing a Registration, a business must file a Statement of Information.  The Registration was filed on October 18, 2017; even allowing for the lag associated with processing times, as of February 1, 2018, the required Statement of Information remains missing:

fairfax no SofI.JPG

IV. A track record of legal challenges

The apparently missed legal deadlines at Cinefamily and Fairfax are the most recent in a line of legal challenges:

  • The California Attorney General flagged annual Cinefamily filings as "incomplete" in 2010, 2011, and 2013.
  • The California Employment Development Department filed multiple tax liens for thousands of dollars against Cinefamily in 2015.
  • Former Cinefamily staff tell me they filed wage claims at the state Division of Labor Standards Enforcement in 2017.  At least seven wage claims are reportedly still pending.
  • Cinefamily has not made tax filings available since 2014.  As reported earlier, experts believe Cinefamily has violated requirements around timely filing.  More than one high-ranking Cinefamily insider told me Cinefamily never filed tax returns for 2015 or 2016.  (A future posting will explore some theories why Cinefamily may not have filed 2015 or 2016 taxes.)
  • Long past the 30-day requirement, Cinefamily has still not produced legal documents following an October 2017 written request; in November 2017, Cinefamily's lawyer personally confirmed to me the public right of access and promised to produce the documents.  (He produced no documents and has not responded to further communications.)

Are Harkham and Hensley unaware of their responsibilities?  Are they trying to meet their obligations but don't know how?  Do they believe the rules don't apply to them?  Is there another explanation?

As always, I'll provide updates as I get them.  Meanwhile, if you've received any required legal filings -- or have any insight into the ongoing challenges -- please let me know!

*UPDATE 2/6/18: One former staffer reports that he did, in fact, receive his W-2 before the end of January 2018.  This same staffer reports that as of February 1, he'd "heard from other staff that they haven't received them yet."