David Stewart 0:01

Happy holidays from Tax Notes. I'm David Stewart, editor in chief of Tax Notes Today International. Well, it's been a unique year and that's probably the nicest thing I can say about it. So as we show 2020 the door , we're going to continue our annual tradition by ending the year with a few short tax stories that may be a little odd or otherwise don't work as a full episode. As our gift to you this holiday season, here's our year-end collection, 2020. Joining me now is Tax Notes reporter Carolina Vargas. Carolina, welcome back to the podcast.

Carolina Vargas 1:46

Thanks for having me.

David Stewart 1:47

Now, I understand you have a couple of stories about some of the more unexpected results of the coronavirus. Can you tell me what happened in Salem, Massachusetts this year?

Carolina Vargas 1:56

So, Salem, best known for its 1692 witch trials, canceled all the major events this year. Hotel and motel tax revenues were down 55 percent and meals tax revenues were down 35 percent in the first quarter for fiscal year 2021. Normally, the city gets around 500,000 visitors, and it's usually very important for the local economy. They usually hire a lot of people during this time, but all these large-scale events had to be scaled back.

David Stewart 2:23

I suppose it would be wrong to call this their worst year ever, but maybe it's second?

Carolina Vargas 2:27

That sounds about right.

David Stewart 2:29

So, how did ping pong make news in Colorado?

Carolina Vargas 2:31

So, in Colorado May actually started with the first month of sports betting. That happened to be a time where there was a lot of shutdown for most major sporting events. So, ping pong actually was one of the big revenue raisers for online sports betting.

David Stewart 2:46

I guess people will always find something to bet on.

Carolina Vargas 2:48

They definitely did. They raised $6.59 million in online sports betting that month.

David Stewart 2:53

So, was ping pong the only game in town or were there other things to bet on?

Carolina Vargas 2:56

There were definitely a few other sports that people could bet on, including mixed martial arts, tennis, and darts .

David Stewart 3:03

Would that be full-sized tennis?

Carolina Vargas 3:05

Yes, it would.

David Stewart 3:06

All right. So, full-size tennis, mixed martial arts, and darts. That's quite a collection.

Carolina Vargas 3:11

Yes, it is.

David Stewart 3:12

I would have to say that ping-pong does seem to be the perfect sport for a pandemic. It's already socially distanced.

Carolina Vargas 3:18

That is true. You got to keep apart.

David Stewart 3:20

This has been great. Carolina, thank you for being here.

Carolina Vargas 3:22

Glad to be here.

David Stewart 3:26

And joining me now is Tax Notes legal reporter Nathan Richman. Nate, welcome back.

Nathan Richman 3:30

Thanks for having me, Dave.

David Stewart 3:31

So, I understand you have another interesting tax story for me this year.

Nathan Richman 3:34

Don't I always?

David Stewart 3:36

That's what we count on you for.

Nathan Richman 3:37

So, this year we've got these brothers, Larry and Jack Lewis . Larry, when he's getting ready to found a company with a man named You Roland Li, this company will facilitate international transactions. But Larry has an issue. He owes the IRS a lot of money, and he would rather not pay it from the growth anticipated in this company, which he's going to own 86 percent of. So, he and Jack combine their heads and supposedly they make the decision that Jack is going to hold these assets for Larry, for which he's going to get 10 percent of the proceeds. The rest will go to Larry. This seems, "Oh great. Yeah, we're going to use Jack as a nominee and the IRS won't notice. And we'll get away with all this money." Except that Jack decides —

David Stewart 4:21

That seems like it might be not the best plan.

Nathan Richman 4:25

And it goes bad in way more ways than they thought because Jack decides he'd rather have 100 percent than 10, and so he just takes it. The operating agreement for this company is already in his name. "Hey, it says 'Jack owns 86 percent.' I own 86 percent."

David Stewart 4:40

All right. Yeah, come and get it.

Nathan Richman 4:41

Larry and Lee decide they would like to undo this tax fraud so that they can have the company in Larry's hands, and they sue Jack.

David Stewart 4:49

So, I guess the decision there is I'd rather have 70 percent of what I was going to have before than zero.

Nathan Richman 4:54

And they sue. And their complaint says Larry was trying to commit tax fraud. He'd like this back. And so, Larry and Lee moved for summary judgment. Judge says, "Unclean hands. No, I don't want anything to do with this. Go away." At which point Jack says, "Ooh, I won . Please give me a temporary restraining order on all the related bank accounts." To which the judge replies, "Was I not clear the first time? Unclean hands. Go away. Unless of course you can prove you weren't actually part of the fraud." The only one the judge really seems sympathetic for is when the IRS intervenes and says, "Hmm, it sounds like there's an asset here that we have an interest in. Please put that lien on it." Judge says, "Oh yeah, sure. Clean hands there ." Fun will be when IRS Criminal Investigation might also have an interest in these two brothers.

David Stewart 5:46

Well, I guess in the meantime, I'm assuming that there will be a rather awkward family get together around the holidays.

Nathan Richman 5:52

While Zoom might be useful for something.

David Stewart 5:54

All right, Nate. Thanks for being here.

Nathan Richman 5:55

Thanks for having me.

David Stewart 6:53

And joining me now is Tax Notes legal reporter William Hoke. Bill, welcome back to the podcast.

Jeanne 6:57

Thank you. Glad to be here.

David Stewart 6:59

So, I understand you have an unusual story about paying taxes.

Jeanne 7:02

I do. It's something that came out of Mexico where the Mexican government has a program — which has been in effect unofficially since 1957 and officially when it was codified in 1975 I think it was — to allow artists to pay their taxes by donating art, that will then be shown permanently, I guess, in museums or in government offices.

David Stewart 7:27

I guess that raises a lot of questions about what is art, and I suppose this story kind of gets into that question.

Jeanne 7:34

Yes. I guess it's sort of appropriate because this deals with art that's created through artificial intelligence and art is the first syllable of artificial. So, maybe that's where these guys got this idea. The people who did this, one is an architect and Mexican. The other is a British artist, I guess, who lives in China, which made indications a little bit difficult. I don't know what the connection is, why he's in China and he's doing art from Mexico, whatever. Somehow they collaborated on this thing. And what they did was they used what's called a generative adversarial network, or GAN, and what that does is it fits a generator model within this artificial intelligence. And against a discriminator model that tries to determine whether the examples being created by the generator model are either real or fake. I'm just taking this from some explanation, because I had a hard time wrapping my head around it.

David Stewart 8:33

We'll hope the computer scientists know what those all mean.

Jeanne 8:35

You know, if we have any computer scientists who follow tax news, we'll probably be getting some kind of letter to the podcast editor because I'm going to butcher this, I'm sure.

David Stewart 8:45

Yeah. Luckily you're not on Twitter, so this should be safe. Go ahead.

Jeanne 8:49

All right . Great. One quote I read about it is the two models are trained together in a zero-sum adversarial game until the discriminator model is fooled about half the time. Meaning the generator model is generating plausible examples. So, these guys fed it all into the program. And we can talk in a bit about what they fed into the program, because that was intriguing. And they just let it work away until I guess it reached this threshold where the discriminator model is fooled half the time. And voila, some image came out.

David Stewart 9:22

So, that sounds like how all art is created. Right?

Jeanne 9:25

I am the least culturally attuned person to be writing an article about this, but it seemed interesting to me.

David Stewart 9:32

So did the artists create this discriminator model? Did they create this program?

Jeanne 9:37

No, they didn't . And this is another thing that surprised me. They just used open source software. They found it out there as one of the two. This was Celyn Bricker, the U.K. citizen. He said, "We didn't even modify it. We have no control over the results." It begs the question whether there can be art with no human artists behind it. But they said Bricker and his colleague Arturo Muela said that they decided to work with a third artist. The third artist being an artificial intelligence neural network create the images. And what they did was they took text from two different prominent people, one being Andrew Yang, who's a U.S. entrepreneur and a former Democratic presidential candidate in the last cycle who didn't get very far, and also Elon Musk, the CEO of SpaceX and Tesla. Both of them indirectly have some kind of tax connection. Yang advocated for adoption of a VAT to fund a universal basic income scheme. Elon Musk also said that a universal basic income scheme will at some point in the future be needed. It's also interesting that in doing this, here we have images that are being created for Mexican tax purposes. And I guess they felt even though the people that were the subject of the quotes that they fed into this artificial intelligence program were speaking, presumably in English, they translated at least what Musk said into Spanish before running it through the artificial intelligence program. So, I don't know if there was something lost in translation there, but the images are obviously abstract and they're interesting. Obviously on a webcast we can't show that, but you can go to the article and find it there.

David Stewart 11:18

We will be providing a link in the show notes. And I'm not an art critic, but this doesn't speak to me .

Jeanne 11:24

I was scratching my head as well. One of them, I guess it was both, they put out a press notice when they first announced the results and that's how I learned about this. They said that the process of developing the art and getting it approved for tax purposes raised questions about automation, the idea of non-human entities paying tax, and the status of AI and creativity. And so, part of what they said there, it jived with things I've written before. Because I've written a major article a couple of years ago, maybe three now, about taxation of the internet of things. And then, about a year and a half ago maybe, this whole issue of machines — people worried about them taking over the world and there won't be anybody left to pay taxes — so will the machines have to pay tax? Will the robots? So I'd written an article called "Taxing Automatons." And again, so that just sort of jived with what this whole thing was about.

David Stewart 12:18

All right , so we've got two artists and artificial intelligence taking the text from someone else, putting it into the system, and generating an image. How does one value this contribution as a tax payment?

Jeanne 12:30

Oh, of course you use a cryptocurrency. What else would you use? So, it seems as if they developed seven images. And each one they decided to value — and apparently the Mexican tax authorities accepted — at one-seventh of a Bitcoin. So, when I talked to them, a Bitcoin was worth $15,600, so that would have been , each image was $2,225. Of course, now a Bitcoin is worth $18,100. So, the value just fluctuates all over the place. But at that time, that's how they decided.

David Stewart 13:05

Are these artists planning on doing more of these works?

Jeanne 13:07

I'm not sure. I asked them that. In fact, to me, it's almost like this thing where you get a lithographer or a painter doing an image, and then having a limited edition, like 100 copies of it. It just seems like you could do an infinite number, but the value is determined artificially by the scarcity that you decide will govern this work of art. So, I don't know if they're going to be doing it in the future. I had hoped , even though the images that they created and we included in our article, were indirectly tax-related, I asked them to do some images that were really much more directly connected with taxes. By taking some of the most famous quotes in the history of taxation, like "The power to tax, the power to destroy." "I like to pay taxes, with them I buy civilization," and "Taxation without representation is tyranny." Now, I thought a lot of our readers would be interesting to see what comes out. Some of those comments are obviously at odds with each other, but they declined, saying that they wanted to maintain the integrity of the artwork series. All they would have had to have done was to put those quotes into their program. And he said it normally takes a couple of hours for the discriminator and the generator models — their little battle against each other — and then something would crank out. But they declined.

David Stewart 14:21

It is a fascinating little story. And now, I'll say that as visual art works , these don't speak to me. But as a piece of performative art, where they're using this process to pay their taxes, I can get on board with that.

Jeanne 14:33

Yeah. If the U.S. would do that, I'd get my crayons out.

David Stewart 14:36

Well, Bill, this has been great. Thank you for being here.

Jeanne 14:39

OK. You're welcome.

David Stewart 14:41

And with the year coming to a close, I'd like to thank our producer Paige Jones, engineers Derek Squires and Jordan Parrish, Acquisitions and Engagement Editor in Chief Faye McCray , Assistant Acquisitions Editor Nicole Wilder , Executive Editor for Commentary Jasper Smith, as well as all the reporters and contributors who make the show possible. And thank you to all the listeners out there who make this whole endeavor worthwhile. Happy holidays, stay healthy, and we'll see you next year. And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now from her home is Acquisitions and Engagement Editor in Chief Faye McCray. Faye, what will you have for us?

Faye McCray 15:17

Thank you, Dave. We're going to take a break from the usual this week to discuss writing for Tax Notes. We received quite a few inquiries about how to publish in our pages. So, we'll be sharing some insider tips on how to join the ranks of our esteemed authors here at Tax Notes. Each week, we'll feature an interview with the top commentary editors of Tax Notes Federal, State, and International. This week, I chatted with Tax Notes State Editor in Chief, Jéanne Rauch-Zender. Jéanne, why don't you tell us how you came to Tax Analysts?

Jéanne Rauch-Zender 15:48

I was a manager at PwC and heard some fantastic things about Tax Analysts. And I made the move and have been here for six years.

Faye McCray 15:58

Very nice. Now, one of the things the commentary team here at Tax Analysts always gets asked is, "What should I write about?" And the most obvious answer is current and buzz-worthy topics. But is there anything else in particular you'd like to see authors tackle in the pages of Tax Notes State?

Jéanne Rauch-Zender 16:17

I have been looking for someone to write on environmental law and environmental tax issues primarily. I had someone for a little bit — "Going Green" is what the column was called. However, he's retired. You know, for State we have several columns that perhaps may not impact all of our authors directly. We have a tribal tax column, but it still addresses important current issues. So, I think that it's important in our roles to provide as much information on the platform as possible. So, definitely looking for environmental. And I'm looking for someone that will discuss some sports tax issues and sports law as well with athletes and spending time in different states and so forth that I think would be really well received .

Faye McCray 17:03

That's great. And you've been editor in chief for six years now. What is your most memorable experience in working with a particular author so far?

Jéanne Rauch-Zender 17:12

Definitely when Peter Faber retired. I feel very fortunate that he still writes from time to time. He's busy enjoying retirement. But I feel very fortunate that he had a regular column with me for the last few years before he retired. And when he let me know he was retiring, we surprised him, of course, with a section in the magazine. And I just really wanted him to know the impact that he had on myself and the team and the community. And I think he did. But again, he still will write a letter, and we've gotten an article here or there from him. And, "In the Trenches" will always be open for him. But it was just a real joy and I love to be able to, you know, if someone is retiring, I love to be able to essentially almost give them the farewell that I feel like they've — when they've contributed so much to us. It does take a lot to write and they have full-time jobs, and more than full-time jobs. And so it , it was definitely something special that I really wanted to give back.

Faye McCray 18:21

Absolutely. For our final question: why Tax Notes? There are so many places to publish today. Why should authors choose us?

Jéanne Rauch-Zender 18:31

I honestly think that it is where you go to see what your colleagues think on an issue. We have the best in the field writing for us. You want to hear what they have to say. You want to hear how they're analyzing these issues and what the takeaways are so that you can apply them with your clients.

Faye McCray 18:51

Thank you, Jéanne. You can learn more about writing for Tax Notes by visiting taxnotes.com/acquisitions. And be sure to subscribe to our YouTube channel Tax Analysts for more in-depth discussions on what's new and noteworthy in our magazines. Again, that's Tax Analysts with an S. Back to you, Dave.

David Stewart 19:09

That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts .org . And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.