On July 4th, my husband and I did what hardly any parents I know do anymore: we went to the movies. That’s right. We braved the holiday crowds to see a movie. We figured that the early morning show would be empty – we were wrong. This movie (tops at the box office right now) is so hot that a 10 am show on a mid-week holiday was packed.

So, to kick off my Taxgirl Goes to the Movies series, I’m reviewing the hottest movie of the summer (so far): Ratatouille.

[Here’s my disclaimer: I don’t know French tax law, so my review is based on US law. Additionally, you and both know that although the US would love to do it if they could, they haven’t found a way to tax animals yet. So, I’m going to base my tax commentary as if the rats in the movies are the same as US citizens. And one more thing, I’ll try my best not to give out any big spoiler type info – but I can’t promise. So, you’ve been warned!]

The Background

Remy (voice of Patton Oswald) is a rat who lives in the French countryside with his brother, Emile (voice of Peter Sohn), and his father Django (voice of Brian Dennehy).

Remy has an amazing gift. He was blessed with an extraordinary sense of smell. This quickly makes him the official “poison sniffer” at home, a job that leaves him unfulfilled.

In his spare time, Remy sneaks into the kitchen at the human’s home where he stays and watches TV. He has a bit of a routine. The human in the house sleeps while a cooking show hosted by Parisian chef Auguste Gusteau (voice of Brad Garrett) blares from the TV. Gusteau constantly preaches his belief that “anyone can cook” – which is also the name of his cookbook. Remy is smitten – he loves food. No, he loves good food. And he wants to share it.

The Problem

Remy first wants to share this love of good food with his brother. Unfortunately, Emile’s standards aren’t quite the same. In an effort to show Emile how good food is different from garbage, Remy shows Emile the kitchen. They begin taking food while Remy experiments with different combinations of foods and herbs. In the middle of one of their food runs, the human in the house wakes up, discovers the rats, and in a particularly violent scene (my children were scared) tries to kill them. The human destroys her house in the process.

This raises an interesting question: should this qualify as a casualty loss? You can usually take a “casualty loss” on your tax return if there is the destruction of, or damage to your property from “any sudden, unexpected, and unusual event.” This is clearly unexpected and unusual, but probably not considered sudden. Infestation in a home happens over time and is not considered a casualty loss event. Examples of casualty loss events include car accidents, fires, earthquakes, hurricanes, tornadoes, floods, and vandalism. Infestations of regular pests like termites and rats don’t qualify – but swarms of unpredictable locusts might.

Despite efforts to kill them, the rats survive and escape to the sewers of Paris. Unfortunately, in the middle of the chaos, Remy is separated from his family. Alone, he finds himself comforted by the ghost of Gusteau; Gusteau had died earlier of heartbreak following a particularly scathing review of his restaurant by critic Anton Ego (voice of Peter O’Toole).

Gusteau’s ghost has more to be sorry about. Following his death, his sous-chef, Skinner (voice of Ian Holm), has made something of a joke of the restaurant and Gusteau’s good name. Caving to corporate pressures, Skinner has begun marketing a series of microwavable frozen foods with Gusteau’s name and likeness.

Since Gusteau is no longer alive, who is reporting the proceeds from the frozen foods as income? And what about the restaurant?

Assuming that the estate is still open (a good assumption, read on), the estate should likely be reporting the income associated with frozen foods – unless it was done as part of a corporation. It would be unusual for any business that deals with food (think really high potential for liability) not to be incorporated. I’m guessing that Gusteau’s was structured as some sort of corporation. Corporations have perpetual life and would not end at Gusteau’s untimely demise. Thus, the corporation (or corporations) likely continued with Gusteau’s estate as a significant, if not sole, shareholder. The tax consequences to the corporation wouldn’t really be different whether Gusteau was alive or not; the estate would report any income due to Gusteau.

However, the question of who makes the decisions about Gusteau’s likeness is a fair one and one that deserves a little thought? It’s likely that Skinner holds a management position in Gusteau’s empire. As such, he can likely determine how Gusteau’s image and reputation can be managed following his death. This is something that all business people should think about… how long until Gusteau’s ghost is dancing with Fred Astaire in a vacuum commercial? Or singing with Celine Dion on an American Idol special? It’s not all about tangible assets when planning your estate – consider the intangibles like the value of a reputation, as well. Licensing and royalty issues are key in small businesses, especially lucrative ones like recognizable restaurants.

When a key person leaves a small business, the value and reputation of the restaurant often drop if proper steps haven’t been taken to preserve the reputation. And that’s what happened here. The restaurant continues to churn out food, despite lower crowds and fewer rating stars. When the new garbage boy at Gusteau’s, Linguini (voice of Lou Romano) arrives on the scene, he is forced to fix a soup in the kitchen due to his own mishap – and does so badly. Remy watches it happen and saves the day, fixing the soup without anyone – including Linguini – any the wiser. The food critic at the restaurant that day finds the soup delicious, revitalizing the restaurant’s reputation. As a result, Skinner gives Linguini has a new job: chef.

The Solution?

Through a series of events, Linguini realizes that Remy can understand him – and that Remy can cook. Remy manipulates Linguini’s actions by pulling his hair under the toque. And slowly, Linguini learns to cook – with Remy’s help. This brings up a whole assignment of income/subcontracting question which fascinated me but bored my husband, so I’ll mention it in passing. As a rule, you can’t do work and have someone else be paid for it. This is kind of what’s happening here, though arguably Linguini is doing the labor, and Remy is merely directing him. He’s almost like a ghost-cooker if you will.

Though settled into his new life in the kitchen, Remy misses his family. He shortly finds out that his family is living in Paris. Despite Gusteau’s ghost’s protestations, Remy begins to steal food from the restaurant to feed the rat pack, who are his brother and his friends.

While it’s disturbing to have items stolen from your business, Gusteau’s does have a little relief: losses from theft can be reported on your tax return, much like casualty losses. Of course, Gusteau’s must be able to prove the theft in order to claim the deduction and to do that, they would have to be aware of the theft. Additionally, since every deduction should be matched with income (a basic tenet of the tax code), Remy must also report the fair market value of the things that he stole as “other income” on his tax return. It’s actually a crime to not report income from illegal activities on your federal income tax return (my favorite provision in the Tax Code), so why exacerbate the problem?

The Secret

During these late-night illegal scavenges, Remy discovers a secret: Linguini is Gusteau’s son. According to the terms of the will, Gusteau’s heirs must come forward within two years. If not, Skinner will inherit the entire estate. Remy helps Linguini find the documents and claim his spot as sole heir.

And this is where I actually drifted off in the movie wondering about the tax clause in the will, whether the residue of the bore the entire responsibility for the tax (since the restaurant was, I believe, a specific bequest), whether there were liquid assets in the estate to pay the federal estate tax which would be due… And this is probably where you’ll drift off, too (for different reasons) if I start writing too much about the “what ifs” of the tax. So, I’ll say this. It’s interesting that the will allowed two years for the heir or heirs to come forward since that’s the average amount of time that an estate remains open. For federal estate tax purposes, the estate tax would have to have been paid within 9 months of the date of death. I’m assuming that Gusteau’s interest in the restaurant and related activities was more than $2m, the current federal estate tax exclusion. One hopes that there was enough cash in the estate to pay the tax. Since the restaurant wasn’t sold, I’m assuming that there were enough assets or in the alternative, if there weren’t, then a lien has been placed against the restaurant.

The more interesting question is what the executor did with respect to state inheritance or estate tax. In several states, like Pennsylvania and New Jersey, the amount of tax is directly impacted by the relationship of the beneficiary to the decedent. A child’s share might pass at 0-5%, depending on the state, but nonrelatives such as Skinner are usually taxed a much higher collateral rate, such as 15%. These taxes are due 9-10 months after death, so in theory, they should have already been paid or at the least, filed. I’m not sure how you could file a return with such little information.

Of course, I say all of this as if the estate were actually being managed properly. Since Skinner was hiding what appeared to be the original Will, I’m pretty sure that the will had not been offered for probate. There had been no advertising or searching for heirs. Don’t even get me started on how much trouble the attorney handling that case would be in…

The Resolution

But back to the story. You can probably guess what happens next. Linguini’s successes, including a romance with fellow chef Colette (voice of Janeane Garofalo), go to his head and result in a rift between Linguini and Remy.

The rift heals on the night that Ego returns to Gusteau’s. Remy decides to cook ratatouille, a French peasant dish, with the help of his rat friends and family (yeah, at this point, the grown-ups are probably squirming in their seats). The dish touches a nerve with Ego. He loves it. His request to meet the chef is honored and he learns Linguini’s secret.

I won’t give away the rest. Suffice it to say that the secret doesn’t go over well in Paris, and changes have to be made. But like all Pixar films, it ends well. Everyone is happy… well, almost everyone.

And the tax lessons to be learned? Properly report your income, no matter what the source. Write a will – and do some tax planning. Make sure your business affairs are in order.

The life lessons to be learned? Do what you love. Believe in people. Respect what others think. And don’t let rats infest your kitchen.

The Skinny

The movie was nominated for review by Jammer. Remember that your comments will count as votes for Jammer – and he can win some great prizes. So tell me what you think? Did you see the movie? Did you like it? Did you wonder about the will? The tax? The licensing and royalty issues?

And if you want in on the action, be sure and leave your suggestions on the original post.

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Author

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

Comments

  1. Yeah, not too many spoilers there eh? Just about everything but the ending. However, even if you knew the whole story it’s still worth seeing because what makes that movie great is the character acting / animation.

    I was wondering about the estate myself while I watched it, sometimes it’s just better to keep the suspension of disbelief, and just chalk it up to France being weird.

  2. Hey Jeremy,

    You were warned! 🙂

    Actually, the funny thing was that there’s been so much promotion for the movie, I knew the plot before I sat down to watch it.

  3. Jammer? Hey, that is me. (or actually the Rat writing Squibkick for me)

    Kelly, does my Rat have to fill out a w2 if he ‘fesses up?

    Can my rat be paid under child tax law seeing he is only 3 years old?

    ouch, child labor laws???

    there is no rat, no rat. just kidding.

    great movie though!

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