Actress Amy Adams attends Paramount Pictures premiere of ‘Arrival’ in Westwood, California, on November 6, 2016. (Photo credit: VALERIE MACON/AFP/Getty Images)
The Oscars are here! You don’t want to see a movie with me. I constantly question the tax consequences of plot lines. It’s a sickness. So, of course, I’m sharing with you. And since it’s awards season, I’m specifically focusing on Oscar-nominated films. But I’m not offering your typical film review. Instead, I’m focusing on the tax considerations – and consequences – of the plot of the film and how the decisions made by the characters would play out in real life.
My previously reviewed movies have included such gems as Trading Places, The Shawshank Redemption, and Ratatouille. In my reviews, I’ve tackled presumption of death, international tax treaties, illegally gained income, commodities markets, and estates issues. Fun, right?
While I’ll try my best not to give too much away, reviews may contain spoilers. If you haven’t yet seen the film, then you may wish to skip the review.
First up: Arrival.
Arrival is nominated for eight Academy Awards, including Best Picture, Best Director (Denis Villeneuve), Best Writing Adapted Screenplay (Eric Heisserer), Best Cinematography (Bradford Young), Best Film Editing (Joe Walker), Best Sound Editing (Sylvain Bellemare), Best Production Design (Patrice Vermette, Paul Hotte), and Best Sound Mixing (Bernard Gariépy Strobl, Claude La Haye).
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The film begins with a voice-over from Louise Banks, a linguist and college professor (Amy Adams). Through what appears to be a series of flashbacks, Banks talks about her daughter, who eventually, it’s revealed, dies of cancer.
It’s implied, at this point, that Banks is a single parent, the result of a divorce. Divorced parents can typically file their taxes as single or as head of household. To file as head of household, Banks must be single, divorced or considered unmarried at the end of the tax year and have paid more than 50% to keep a home (in the film, she lives in a gorgeous home on the water) for the entire tax year with her dependent. It’s worth noting that if Banks is merely separated but considered legally married under the laws of the state where she lives, she could not file as single.
Figuring out dependency when there is shared custody can be tricky. It’s implied, however, that the daughter’s father left the pair because he was angry at Banks, leaving Banks as the sole caretaker and provider for her daughter. If that’s the case, it’s likely that she claimed her daughter for income tax purposes. Under the rules, a child who dies during the calendar year is still considered a qualifying child for purposes of dependency (and thus, exemptions, credits, and deductions).
One day, Banks arrives at her classroom to find it mostly empty. One of her students asks her to turn on the television where she learns that unidentified objects have landed on 12 sites across the globe. The university is evacuated.
Banks comes back to school the next day but finds it empty due to a state of emergency which has been declared by the President. Would you go to work if you thought the world was ending? Apparently, most people would not. But Banks did. I’m assuming she’s getting a paycheck either way but if, for some reason, the university suspended pay while the campus was closed, there would be no tax consequences. You generally can’t claim lost wages as a deduction or any other loss.
While at work, Banks is visited by U.S. Army Colonel Weber (Forest Whitaker) who asks her to help communicate with the aliens. At first, she demurs, but later hops on a helicopter with Los Alamos National Laboratory scientist Ian Donnelly (Jeremy Renner) to fly to one of the alien sites, this one located in Montana. Their goal: find out why the aliens have landed and what they want.
Banks and Donnelly become part of U.S. Army operations working in a makeshift military camp. They visit with the aliens, called heptapods because they have 7 limbs. Banks and Donnelly eventually discover that the aliens have a "language" made up of circular symbols and make several subsequent visits to the aliens’ spaceship to try to make a connection.
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BEVERLY HILLS, CA – JANUARY 08: Actors Amy Adams and Jeremy Renner attend the 74th Annual Golden Globe Awards at The Beverly Hilton Hotel on January 8, 2017, in Beverly Hills, California. (Photo by Frazer Harrison/Getty Images)
Banks and Donnelly aren’t officially Army personnel but for tax purposes, they’ll likely be treated as such. It doesn’t matter that they do not have a rank or an official uniform. It also doesn’t matter that they’re short-term hires. Remember: employees can be full time or part time, seasonal or year round, temporary or permanent. The question of how to characterize workers as employees versus independent contractors is typically a question of control. In this instance, Banks and Donnelly are given the tools to use, clothes to wear, and they operate on a schedule completely dictated by their employer. That makes them, for tax purposes, employees.
A bonus for the pair? Typically, living expenses provided by the military are tax-free as are medical and dental care (and they’re totally going to need some medical treatment after their experiences with the aliens).
And if the area has been designated as a combat zone (any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat), combat pay is tax-free. I don’t know about you but I have to think that a military camp set up to monitor aliens you believe are trying to take over the world qualifies as a combat zone. In fairness, however, there’s no precedent. Yet.
The work, even if it is tax-favored, is exhausting and Banks has irregular sleep cycles during which she dreams about her daughter (sometimes, she daydreams about her, too). These dreams are interspersed with Banks’ ongoing research into the aliens’ language.
At first, countries across the globe share their research with each other. However, fear and misunderstanding cause countries to stop cooperating with each other and China eventually signals that it intends to launch a military attack on the spaceship.
In the meantime, soldiers at the camp in Montana plant a bomb in the spacecraft. When Banks and Donnelly go back inside, they receive a message from the aliens just before the bomb explodes. The two survive but as a result of the attack, the spacecraft pushes further away from Earth and the military decides to de-camp. While it stinks to have to move, there is a plus side: any moving expenses incurred by Banks and Donnelly which are work-related are deductible.
Banks eventually figures out that the message from the aliens is a gift: they want to share their language with Earth. The language is significant because it alters the perception of time (specifically, the notion that time is linear). Banks also learns that she has the ability to see the future. She uses her visions to convince General Shang (Tzi Ma) to call off China’s military attack against the spaceships. With that, the countries begin cooperating with each other again, and the spaceships eventually leave Earth, restoring peace. Sadly, there’s no tax break for saving the world (I know, that seems wrong).
Donnelly tells Banks that he was glad that he met her and it becomes clear that they get married and have a baby. Getting married changes not only your life but your tax situation. Ditto for having a baby.
Finally, Banks asks Donnelly whether he would make different choices if he could see into the future, not revealing what she knows about what is to come. (While you don’t get a tax break for that but it could help a lot with tax planning.)
** Of course, my review is based on U.S. tax law. You and I both know that although Congress would love to do it if they could, they haven’t found a way to tax life on other planets. However, the U.S. does believe in global taxation. If the aliens in the film had established residency by camping out in Montana, then their income-related activities would be taxable. In that way, our tax system provides a disincentive for aliens to attack our country. So I’m not saying that our current tax system has saved us from alien attack, but we haven’t had any yet… so you do the math.
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