Year-End Collection: Tax Oddities Of 2021

Tax Notes reporters recap some of the unusual tax stories they covered in 2021, from an international basketball player’s tax troubles to a court fight in India over a Michael Jackson concert tax. 

This transcript has been edited for length and clarity.

David D. Stewart: Happy holidays from Tax Notes. I’m David Stewart, editor in chief of Tax Notes Today International.

Well, we’ve made it through another strange year. As 2021 comes to a close, we’re going to continue our annual tradition of ending the year with a few short tax stories that may be a little odd or not enough for a full episode.

This year, Tax Notes contributing editor Robert Goulder got to talk with our reporters about their stories. Bob, it’s great to have you back on the podcast, and thank you for helping out this year.

Robert Goulder: Dave, my pleasure. It was a very busy year in the tax profession, and it gave us a lot of interesting material to cover. It was fun.

David D. Stewart: All right. Well, could you give us a brief idea of the stories we’re about to hear?

Robert Goulder: Oh, so many good stories here, David. We’ve got a piece about a professional basketball player who left the NBA to go apply his trade in China, and then years later he got in trouble with the IRS.

Continuing with the basketball theme, we’ve got a story from the Lone Star State of Texas, where there’s a basketball team down there: the Dallas Mavericks. Their owner, Mark Cuban, who’s something of a celebrity in his own right, caused a dust up by not playing the national anthem before some of the games. That ended up having tax consequences, believe it or not.

Then after Texas, we go international here. We’ve got the French government doing some interesting things. France is using social media platforms to obtain data on tax cheats.

What year would it be if we didn’t have a story about rock-and-roll or pop music? We’ve got a piece that comes all the way from Mumbai, India, where a local court has finally resolved a tax dispute arising from a Michael Jackson concert that took place about 25 years ago. 

David D. Stewart: All right. Those sound great. Let’s go to the first story.

Robert Goulder: Our first selection comes from Paul Jones, Tax Notes senior reporter, and it involves one of my favorite places, the Lone Star State.

Paul, welcome to the podcast. Tell us what was going on down in Texas in 2021.

Paul Jones: Thanks, Bob. Well, in 2021, there was a bit of a firestorm when it was reported that the owner of the Dallas Mavericks, Mark Cuban, had ordered that the national anthem not be played before games as had been customary. This led to a controversy with a lot of people, particularly on the political right, criticizing the decision as unpatriotic.

Cuban, for his part, had previously criticized what he had called, “the anthem police.” He had expressed his support for players who were protesting violence by law enforcement and racial inequality.

Ultimately, after criticism and controversy, the NBA weighed in and said that anthems were going to be played at games. Cuban later said in an interview with ESPN’s The Jump that the team didn’t have a problem with playing the anthem, that there hadn’t been a final decision not to play it on some permanent basis, and that not playing it at the start of the season was in part out of respect to members of the Mavericks community that voiced concerns that the anthem didn’t really represent them and that their voices were not being heard on important issues.

Robert Goulder: Paul, what do you think are going to be the long-term consequences of this? How did it all play out?

Paul Jones: You might have thought that that would be the end of that. Just a news story that came, got attention, and went, but there was some long-term fallout.

As people might remember, there was a proposal by Texas Lt. Gov. Dan Patrick. He jumped on this and said, “Look, if the Mavericks aren’t going to play the anthem, then they shouldn’t be getting Texas taxpayers’ funded subsidies.” He proposed something called the “Star Spangled Banner Protection Act,” which he said in a February tweet would, “ensure that the national anthem is played at all events which receive public funding.”

Essentially, if Texas is providing subsidies for sports stadiums or franchises, the teams would need to play the anthem in order to keep those. Patrick criticized Cuban specifically. He argued that the Mavericks’ decision made it clear that we must specify that in Texas, we play national anthem before all major events.

Robert Goulder: What kind of subsidies are we talking about here? Public funds are involved and how does that come about?

Paul Jones: These are, I think, predominantly funds for the construction and financing of sports stadiums. I don’t know, completely, all of the subsidies.

There was a separate bill proposed by a Texas lawmaker that was going to go after a subtraction or deduction for the cost of paying athletes’ salaries. That legislation didn’t advance.

But obviously in Texas, as in many states, there are subsidies particularly for sports venues that local governments and state governments feel are necessary to prevent teams from leaving and potentially to attract teams to come to the state in the first place.

Robert Goulder: Now, is Texas the only place where this is going on?

Paul Jones: No. There were a couple other states that at least discussed it. I should note that the Star Spangled Banner Protection Act was not just one of those bills that got introduced in Texas. It was debated, it passed both chambers, and was signed into law by Gov. Greg Abbott.

There was also a proposal to do something similar in Wisconsin. That bill which was, for all intents and purposes, sort of a clone of the Texas proposal, passed that state’s assembly. But my last review didn’t indicate that it had gotten further than that.

There was also legislation in Arkansas — not focused on tax incentives — that was approved to require that the national anthem, be played at sporting events held by schools and universities. It still has sort of a focus on publicly funded sport events within the context of the state’s education system.

Robert Goulder: Paul, does it seem a little bit odd to you that state lawmakers are even concerning themselves with this? When I stop and think about it, it almost seems like this has less to do with tax policy and more to do with a convenient proxy for culture wars. Am I correct in sensing that?

Paul Jones: Absolutely. This may be the first time that a state has acted on this particular issue in this way, but I know there was by President Trump in 2017 to go after NFL teams’ tax breaks over kneeling at the federal level.

There was a proposal in Louisiana to go after the Saints’ subsidies by a state lawmaker. I don’t know that that ultimately went anywhere.

But we’re dealing with a sort of a culture war fight. This is an example of how, if you are an entity that receives tax breaks from the government, as our society becomes increasingly polarized, as performative politics by which political leaders attempt to signal their allegiance to the feelings or the perspectives of various constituencies, as they jostle to show that they’re taking this group’s side or this group’s side, that potentially increases the risk to businesses.

Their incentives, whether they should be getting those incentives or not, could be made conditional upon taking a side, or at least not taking a side that offends the other side in this sort of proxy war.

Robert Goulder: Absolutely fascinating. Thank you, Paul.

Paul Jones: Thanks, Bob. It was great talking to you.

Robert Goulder: For our next piece, we focus on a sports-related item. It’s about a basketball player who got himself into trouble with the IRS. It was written by Nathan Richman, legal reporter with Tax Notes, and he’s here to join us. Nate, welcome to the podcast.

Nathan J. Richman: Thanks for having me.

Robert Goulder: What’s going on here? As I understand this piece, we’ve got a basketball player. His name is Randolph Morris. You might remember him from a ways back.

He played his college ball at the University of Kentucky, then he entered the draft and ended up signing a contract with the Knicks?

Nathan J. Richman: First, he signed a two-year deal with the Knicks. After that was done, he had another two-year deal with the Atlanta Hawks. Between the four years, he played about 74 games in the regular season.

At the Hawks he had six games of playoff time. Mildly successful NBA player. He played about a quarter of the games available.

Robert Goulder: Then he had a significant change in the trajectory of his career. He went to China.

Nathan J. Richman: He went to China and there he got a lot more playing time. His team, the Beijing Ducks, had both their first and then a total of three and four years championships while he was there, including him being named, at one point, the playoffs MVP. He had a real run of success over there in China.

Robert Goulder: How much money is he making? We don’t know exactly, but there’s money over there, right? There’s money in that league.

Nathan J. Richman: He was making millions, and the IRS at some point said, “Where’s our cut?”

He maintained his home in Lexington, Kentucky, and was playing over there. His wife was still in the U.S. and the IRS came along and said, “Hey, you should have been paying us. You should have been paying the state of Kentucky.”

They indicted him on eight counts of filing false returns with the IRS and three counts of wire fraud for the false returns filed with the state of Kentucky.

Robert Goulder: Wow. Let me stop you right there. Normally a lot of tax people have their minds on the civil side, but what we’re talking about here is the criminal side of things.

Eleven counts, as you said, all federal counts, eight of them based on the Internal Revenue Code section 7206, filing a false return, but then the wire fraud. That’s not even in the Internal Revenue Code. That’s not Title 26. That’s Title 18. Now, the IRS hasn’t always been doing that.

Nathan J. Richman: There’s a lot of controversy whenever the IRS does this. The defense bar does not like it when it looks like the IRS is getting a little overaggressive at resorting to wire fraud charges for tax misbehavior. The Panama Papers indictment involved this.

Robert Goulder: The amount at stake overall — he made over $13 million in his lengthy career in the Chinese Basketball Association league. This is a criminal case, goes to court. Do you have a bench trial or a jury trial?

Nathan J. Richman: Oh, it’s going to be a jury trial in almost every case in a criminal case. He’s getting ready for trial, and he files a motion to exclude anything he said in the first conversation he had with these IRS Criminal Investigation special agents.

What happened was these two CI agents knocked on the door of his home in Lexington, and nobody’s there. They leave a card. They go back to a restaurant and call him. Leave a voicemail.

He calls back and says, “You can just go to my house and my wife will FaceTime. And she’ll put up the phone. You can talk to me like that.” They go back to his house. Wife greets them. They go in, she sets up the phone with FaceTiming with Morris opposite the two agents. They start talking.

Cut to trial prep, Morris claims that all had to be suppressed because he was not given his Miranda warnings. Miranda warnings only have to come up in a custodial situation. He’s claiming the FaceTime put him in custody from China of these two special agents.

That did not work. That motion to suppress was denied.

But cut to the trial, from my understanding, a big chunk of Morris’s defense was, “I had a legitimate belief that the taxes were all being withheld. Oops. But it was not a voluntary, intentional violation of a known legal duty,” which is the general requirement of any tax charge.

The jury in all of two and a half hours believed him and acquitted him on all counts.

Robert Goulder: He walked. He’s free.

Fascinating story, Nate. Thank you for joining us. 

Nathan J. Richman: Thank you much.

Robert Goulder: For our next story, we go all the way to France, where the local tax administrators have developed some novel ways to try to catch tax fraudsters.

To tell us about this is the author of the piece, Sarah Paez, a reporter with Tax Notes. Sarah, welcome to the podcast. Can you tell us what are those French folks up to?

Sarah Paez: Absolutely. Well, first of all, thanks for having me on the podcast.

Basically, a decree in February of this year clarifies a French finance law that was passed in December of 2020, which allows French tax authorities to collect free, publicly available information on online platforms like Facebook, Twitter, Instagram, to detect potential fraud on a person’s tax returns.

France is treating this as a pilot program. It’s on a trial basis for three years. At the end of this year, it’ll have been going for just about one year.

Robert Goulder: It’s a little bit interesting here because on the one hand, it feels like they’re doing some snooping. Right? If the tax authorities are trying to catch people who are playing fast and loose with the tax laws over in France, they’re kind of snooping on their social media platforms that they use.

On the other hand, people are putting that information out there. Should they really have an expectation of privacy when the understanding is that the whole wide world is going to see this stuff? Work us through some more of these details here.

Sarah Paez: According to the law experts that I talked to for this story, this law was declared in line with the French Constitution. Legally, it doesn’t violate any part of that.

But I will say with a caveat that one of the lawyers I talked to said that the practices put in place by this law and by this decree do present an infringement on French citizens’ privacy. But the government basically just decided that these infringements are considered justified and proportionate to the benefits of fighting tax fraud.

I will say that legally, it wouldn’t be considered snooping. But I think the way that people conceive of social media — that it’s not necessarily for the world, it’s more for sharing with your friends and family — it’s definitely verging on snooping.

Robert Goulder: It’s just interesting that something that you feel very safe about putting on the internet could come back to haunt you. I’m trying to think about how that might happen. You refer to an example here in the piece. You say that data could be used where the authorities gauge a person’s geographical location. They see if that matches with tax claims they’re making about their residency status.

I immediately thought, “Oh, well, in Europe, the countries all have residence-based taxation system.” If you move across the border, say from France into Luxemburg, in theory, you could be getting a lower tax rate in this other country, but only if you qualify as a true bona fide resident for tax purposes, having to pass various objective standards, meaning you’re in the country for a certain number of days.

If you’re posting photos on the internet saying, “I was in Paris, or I was in Provence or wherever,” then they know you weren’t in Luxemburg for those particular days. I can see how that works.

What’s another scenario where this kind of online data could come back to bite you?

Sarah Paez: In terms of the types of taxation that French authorities are responsible for collecting and remitting, one of those things is property taxation.

Say a person decides that they’re going to do a project such as, like, build a swimming pool in their backyard, but they don’t report that they did that. They don’t report any of the building materials, the contractor costs, anything. Basically their taxable property has grown in some way.

French authorities could either be looking through someone’s social media, see that they posted a picture of the swimming pool. They could also potentially be looking at Google Maps — that’s also publicly available geographic information system information — and see that a person has a swimming pool in their backyard where maybe they didn’t before and be able to take that information and do something about it.

That’s just one of the many ways that your information could be used in ways that you did not intend for it to be.

Robert Goulder: Let’s talk about data retention, which is a big issue here. If the French tax authorities are going to be collecting this information, what do we know about data retention?

Sarah Paez: That’s a great question. French tax authorities say that any sensitive or irrelevant data, so that would be anything of racial or ethnic origin, political opinions, religious beliefs, political affiliation, that would be stored up to five days and then destroyed.

However, data that would be useful to French tax authorities that they might just need to mine through, that would be kept for up to a year on a secure server, and then destroyed according to the decree.

That does present some potential issues for data security, because as we well know, there have been many high profile hackings of government databases, considered to be very secure, and they have exposed people’s personal data. Some of the law experts I talked to pointed to that as a pretty big concern with this new decree.

Basically, the answer is they’re taking all the precautions that they believe that they can take, but there’s still that risk of a hack that potentially exposes a lot of things people don’t want exposed.

Robert Goulder: Let’s talk about the actual websites that we know are going to be featured here. Your story mentions Facebook, Twitter, Instagram, but people also do a lot of online commerce. Buying and selling online. E-commerce. Is eBay going to be covered by this?

Sarah Paez: Yes, yes. eBay will be covered by this. I think that’s also an interesting aspect of this law. You don’t necessarily think that you might need to pay taxes on something you’re selling on eBay. Or you might need to collect and remit taxes on it, such as value added tax.

But that could also be something that authorities would be interested in. Especially if you didn’t do some of those things, if you didn’t report income from sales. So yes, eBay and other platforms like it will be covered under this.

Robert Goulder: A lot to think about. Well, there you have it. Sarah, thank you very much for joining us.

Sarah Paez: Thank you so much, Bob. It was great to be back on the podcast.

Robert Goulder: For our last story, we turn our attention overseas to a far away land and a long ago time because the tax controversy involved here isn’t exactly fresh. The author of the piece is joining us. It’s Bill Hoke, legal reporter with Tax Notes. Bill, thank you for joining us.

If I’m not mistaken, this case involves the King of Pop, correct?

William Hoke: It does. The King of Pop being Michael Jackson, who was on a world tour in 1996. One port of call was Mumbai, India.

For whatever reason, Michael Jackson agreed to wave his fee for the concert, but not the admission and entertainment tax charges, the entertainment tax being the subject of my story. The 35,000 people who attended the concert still had to pay to get in there.

The proceeds of the concert fee, not the entertainment tax, was going to be used for charitable purposes, with the charitable purpose determined by the ruling political party in the state of Maharashtra.

The government in power at that time wanted to grant an exemption for the entertainment tax. A local newspaper report back in 1996 said that to claim a tax exemption, the government redefined Jackson’s gyrations as a classical show, even though the state’s chief minister wore cotton wool earplugs during the 120,000 watt extravaganza.

A consumer protection group decided that that wasn’t appropriate. They went to court and convinced the court to deny that tax exemption. The concert organizer paid the tax under protest and sued for a refund.

For whatever reason it took 15 years for the Bombay High Court in 2011 to allow the tax exemption, citing “non-application of mind,” which is a legal term of art that’s used apparently quite commonly in India.

An Indian lawyer that I interviewed for the story told me that the term means that at the time a decision was made, the person who made the determination had not taken all the relevant facts, circumstances, and legal provisions into consideration.

In other words, the person who made the decision had not applied his mind thoroughly to the issue. The lawyer said that the term actually comes up and is cited in many Indian court cases, but it’s nowhere to be found in the statutes.

Robert Goulder: That gets us from the concert date in 1996 to 2011. Bearing in mind, of course, that Michael Jackson actually passed away in 2009.

Now he unfortunately is dead and gone, but there’s still the concert organizer who has deposited this tax and presumably wants it back. How do we get from 2011 to 2021?

William Hoke: Well, apparently the issue went back to court. The information I had available to me, I don’t know the legal machinations that were going on there, but it was still in the court system in January 2021. The government of the state, which is still the political party that was in power back in 1996, decided to waive the fee and I guess they have the authority to do that.

It obviously took a long time. That tax lawyer that I spoke to for the article told me that the legal system is not to blame for the delay in deciding the fate of the waiver. He said, “The judicial system here is structured here in India in a way that urgent matters are given priority.”

Apparently an entertainment fee is not considered an urgent matter under Indian law.

Robert Goulder: Apparently not. There are tax controversies that might involve many millions of dollars. Here the entertainment fee was around, according to the article, $457,000, or 33 million rupees. A substantial sum, but not a huge amount.

If I understand you correctly, what you’re saying about the local legal system there in India is that if a matter is deemed not urgent, it’s just pushed to the back of the line. That means it could just go on and on forever. It could get dragged out because with each passing year more important cases come along and displace it on the docket.

Before you know it, you’ve got a decision coming out in 2021, a full quarter century, believe it or not, after the concert. That’s just a little bit mind boggling there.

William Hoke: Yeah. Well, in India the wheels of justice turn slowly.

Robert Goulder: In reading over your article, one of the things that struck me is there’s no conflict here between the tax administration and the taxpayer. The lawsuit was initiated by a third party.

It was a consumer rights group who said, “Hey, we don’t like the fact that the local government recharacterized the nature of Michael Jackson’s performance from say a popular show to a classical show for the sake of getting this tax exception.”

If that were to happen here in the United States, where we are, I think there’d be an issue of standing. It’s not up for private citizens or even well intended nongovernmental organizations to go into the court and challenge somebody else’s tax affairs. What’s your take on these standing issues?

William Hoke: Again, as you said, that’s determined on a jurisdiction by jurisdiction basis. Apparently, because the issue was entertained by the Indian courts, or the High Court of Bombay, you’re allowed. You have standing in that situation. I’m not sure if that issue was brought it up.

Robert Goulder: Thank you for this story, and we’ll keep an eye on these courts in India. See if they can do anything to expedite the docket in the years ahead. Thank you, Bill.

William Hoke: You’re welcome.

David D. Stewart: Before we go, I’d like to thank our Producer and Engineer Jordan Parrish, Acquisitions and Engagement Editor in Chief Paige Jones, Executive Editor for Commentary Jasper Smith, Assistant Acquisitions Editor Christa Goad, and all the reporters and contributors who make this show possible.

Thank you to all the listeners out there. We couldn’t do this without your continued support. Happy holidays, and importantly, this year, we wish you a healthy new year.