
Art’s Sale Value? Zero. The Tax Bill? $29 Million. - daegloe
http://www.nytimes.com/2012/07/22/arts/design/a-catch-22-of-art-and-taxes-starring-a-stuffed-eagle.html?pagewanted=all
======
temphn
Unusual for the New York Times to criticize the IRS so pointedly. Most private
citizens cannot publicly attack the IRS for justified fear of raising their
profile and triggering an audit (see: Plumber, Joe The or Snipes, Wesley).

But it sure would be useful to have a blog dedicated to exposing the abuses of
the IRS and other agencies. Given how big the agency is, and how infrequent
these articles are, we can be sure this is just the tip of an iceberg of
bureaucratic malfeasance.

EDIT: this is apparently the eyesore that the IRS values at $65 million:

[http://upload.wikimedia.org/wikipedia/en/7/74/Robert_Rausche...](http://upload.wikimedia.org/wikipedia/en/7/74/Robert_Rauschenberg%27s_%27Canyon%27%2C_1959.jpg)

~~~
raverbashing
the IRS is the modern version of the Corsair

And of course, it's always a balance, which ends up with Saverin giving up
citizenship because of their fury and at the same time big companies
Doubling/Tripling Irish everything and being in the clear with them. (not
saying what they did was wrong though)

~~~
rat87
So the IRS are pirates now? Are copyright Pirates still pirates? What
about(Somali) pirates pirates?

------
forrestthewoods
471 million in estate taxes on a $1 billion collection? That's depressing. Tax
collectors being able to declare arbitrary valuations? That's terrifying.

The more common situation is extremely high valuations, and thus taxes, on
real estate which is listed and not selling at half the valuation. I know many
people who have gotten burned by that.

~~~
ShardPhoenix
The fix for this is to give people the option to sell the items to the
government at some high fraction (eg 75%) of the valuation, instead of paying
the taxes.

~~~
zipdog
I think Nascar uses this system to discourage undervaluing entries: owners
declare a value for their car, and Nascar has the right to buy the car at that
valuation. They would only do this if the car was under by a significant
margin, so there's a huge incentive to give a fair estimate for the car.

Its also a little similar to a system used to resolve splitting a 50/50 owned
company: the person who wants to buy out the other partner must first give the
price they'll pay, and then the second partner must choose between buying them
out at that price, or selling their share.

~~~
esrauch
Pretty much the same as the "one splits, the other chooses which half they
want" that my brother and I would use to guarantee fair splits of cookies or
cake.

------
wallflower
If you are more curious about the contemporary art world market and why $29M
is not that expensive[1], I recommend "The $12 Million Stuffed Shark: The
Curious Economics of Contemporary Art".

In general, brand (in this case Christie's and Sotheby's) ranks supreme above
all else. Once you are branded, you can pretty much sell _anything_ as
expensive art.

Also, an interesting factoid - when we hear of Far East/Middle East buyers
bidding tens of millions (or more) for a painting, we naturally tend to think
- who buys that without seeing it - but as the book points out - the painting
has most likely gone to see the buyer already (e.g. Dubai/Hong Kong pre-
auction private tour).

Excerpts from the book:

"Money itself has little meaning in the upper echelons of the art world --
everyone has it. What impresses is ownership of a rare and treasured work such
as Jasper Johns' 1958 _White Flag_. The person who owns it (currently Michael
Ovitz in Los Angeles) is above the art crowd, untouchable. What the rich seem
to want to acquire is what economists call positional good; things that prove
to the rest of the world that they really are rich."

Jasper Johns' White Flag

[http://michaelovitz.blogspot.com/2011/04/weve-featured-
this-...](http://michaelovitz.blogspot.com/2011/04/weve-featured-this-l.html)

<http://www.metmuseum.org/toah/works-of-art/1998.329>

Estimates on the artist economy:

"40k artists resident in London (about same number in NYC)

For London and NYC each:

75 superstar artists (>$1M/yr income)

300 mature, successful artists (>$100k/yr income)

5,000 part time artists (need to supplement their income)"

[http://www.amazon.com/The-Million-Stuffed-Shark-
Contemporary...](http://www.amazon.com/The-Million-Stuffed-Shark-
Contemporary/dp/0230620590)

[1] "If a great apartment costs $30 million, than a Rothko [big deal famous
contemporary artist] that hangs in the featured spot in the living room can
also be worth $30 million - as much as the value of the apartment. But no one
could envision a $72.8 million apartment to use for comparison..."

------
pookeys
It does not matter how rich the parents or how much the family is worth, this
is just plain criminal. If the object cannot be sold or donated because of the
Eagle- then it has 0 value. I hope that the courts find in favor of this
family. The idea that there is a 50% estate tax in this country is BS. Why not
make it 100% and we can just become Marxist...and be done with it.

~~~
kaonashi
The point of estate tax laws is the prevention of the formation of
generational aristocracies. I really have absolutely zero sympathy for someone
receiving $500 million for nothing.

~~~
Dylan16807
If they wanted to be an aristocracy they would pull strings so the children
are given power and make their own money. I don't see how an estate tax helps
here.

~~~
kaonashi
It's slightly less effective.

------
ck2
Those poor poor (inherited) billionaires.

They'll have to make up for it with their 15% tax rate for the rest of their
lives on their derivative income.

Let me know when this practice is making people homeless or preventing them
from getting healthcare.

~~~
Dylan16807
You seem to be implying that the rich don't deserve to be able to have income.
It sounds very sour grapes.

------
Inufu
The taxation rate seems just wrong to me - 471 million for a 1 billion
heritage is almost 50%. Imagine that going on for three generations and
suddenly you've payed more than the heritage's value in taxes!

I'm not sure why they inherited it at all - wouldn't it be way more sensible
to create a foundation who posses all the art? That way, they wouldn't have to
pay any taxes at all.

~~~
Zakharov
Assuming generation lengths of a conservative 20 years, earning 2% interest
after inflation and capital gains tax on the money would result in the real
value of the estate staying constant after taxes.

~~~
Inufu
How can you earn interest on Art?

~~~
rb2k_
Inflation and the art market?

If a painting was valued 1 million dollars 100 years ago, it would probably be
worth a bit more in pure numbers today.

(I'm really just guessing here)

~~~
0x0
Which means you'll have to pay even more taxes, too, right?

------
pavlov
According to the article, the Rauschenberg piece in question is on long-term
loan to the Metropolitan Museum of Art. Aren't museums exempt from many kinds
of purchase limitations? At least they seem to be able to buy cultural
treasures that would be illegal for an individual to acquire.

The solution would be for Metropolitan to buy the piece for $29 million, the
amount of taxes owed by the current owners. They don't make a profit, but no
actual loss either (except the ownership of a piece that they can't legally
own and which is already in the museum).

~~~
antiterra
Even if we assumed the Met could legally purchase the art, it is another
matter to determine whether or not the owners could legally sell it to them.

------
Al_xss
'James Joseph, a tax lawyer with Arnold & Porter in Washington, noted that the
I.R.S. has taxed illegal contraband at its market value, but added: “I don’t
know of any instance where the I.R.S. has assumed taxpayers will engage in an
illegal activity in order to value their assets at a higher amount."'

This seems uncontroversial to me - drugs are taxed at market value because
it's illegal to own and sell them, surely the same should apply to bald
eagles.

~~~
rprasad
The key issue here is that the artwork was created prior to the law
illegalizing private possession of bald eagle remains. It was on those grounds
that the family received special dispensation from FWS to maintain legal
ownership (but not physical possession) of the artwork. (And b/c they do not
possess the eagle artwork, they do not violate the law.)

------
its_so_on
This article got a whole lot less interesting with the sentence: "In this
instance, the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory
Bird Treaty Act make it a crime to possess, sell, purchase, barter, transport,
import or export any bald eagle — alive or dead. Indeed, the only reason Mrs.
Sonnabend was able to hold onto “Canyon,” Mr. Lerner said, was due to an
informal nod from the United States Fish and Wildlife Service in 1981."

This is a piece of artwork it's apparently "just as illegal" merely to own.
(i.e. illegal under the same clause of federal law.)

Suddenly it sounds like they found some obscure law to value it at $0, and
that they would not get in trouble for actually selling it. Rather than
appraisers in on the heist, perhaps they should have written to the Fish and
Wildlife Service to ask if they can sell the thing to pay the taxes on it. The
reason they didn't do that is they didn't want to hear the answer, yes. They
want their cake and to eat it, too. (Keep the work but not pay taxes).

I'm not sure I agree with the existence of this kind of tax, but the case
isn't as clear as the title and first half of the article make it sound.

 _Even then, the government revisited the issue in 1998. Rauschenberg himself
had to send a notarized statement attesting that the eagle had been killed and
stuffed by one of Teddy Roosevelt’s Rough Riders long before the 1940 law went
into effect. Mrs. Sonnabend was then able to retain ownership as long as the
work continued to be exhibited at a public museum. The piece is on a long-term
loan to the Metropolitan Museum of Art in New York, which Mr. Lerner said
insures it, but the policy details are confidential._

this is respected art with a high market value. They should not have put $0 as
its value.

take-home lesson: don't do that.

~~~
JumpCrisscross
> _Suddenly it sounds like they found some obscure law to value it at $0, and
> that they would not get in trouble for actually selling it._

It's valued at $0 _because_ they cannot sell it. It does not have "a high
market value" because it is not, and has no expectation of ever being, able to
be sold.

The Fish & Wildlife Service didn't say they could sell it - it said they could
continue to possess it.

~~~
its_so_on
It's simply not true that it has no expectation of ever being able to be sold.
The piece is already on loan to a museum and displayed there - the sale to a
museum (perhaps the one displaying it) for its permanent collection is
something they should fully expect to be approved. They are trying to skirt
the law on a technicality.

A letter from the Fish & Wildlife Service stating they can't sell it to a
museum - even though it's already on display in one - is what would show this;
but if they asked, they would not get that letter - they would be told they
could, for the same reason that they could keep it. (Because this is a famous,
exceptional, well-known piece that is attested as being produced before the
law that made it illegal.) The conditions would be the same - it would have to
go in a museum.

You have to realize that under the law you're quoting it's illegal to POSSESS
as well. This is what changed my opinion of the case.

So the family is saying "it's illegal to own or sell", so we'll just do the
former since we already got approval but we'll say we can't do the latter, and
won't even try to get approval.

Personally, I think they should put the price that a museum would pay (and not
a recluse billionaire) and which they would expect the Fish & Wildlife Service
to approve. Or they can ask for that approval, which the article doesn't show
them doing. If they asked and the Fish & Wildlife Service said, weirdly, "you
can keep it - as long as it is on display in a museum - but you can't sell it
to that museum" then the article, and you, would have a case.

~~~
fiesycal
The piece is on loan to the museum but they aren't making any money from the
loan. They also can't sell it as the previous poster said because it's
illegal. Why should they pay tax on something that wont provide monetary
benefit unless it is done through illegal means?

~~~
its_so_on
You miss that the article says it is a crime to possess or even transport the
piece. This is like arguing that if you can't sell it without double parking,
it's worth $0 and you don't owe taxes.

~~~
fiesycal
Your analogy wasn't very clear. What I'm saying is if they have no way of
making money off it what taxes do they owe? If you buy shares in a company
that goes bust but you still have the paper should you pay taxes on that if
the IRS decides its worth something?

~~~
its_so_on
I thought like you until the middle of the article, in the place I quoted.
It's not that they have no way of making money off of it - they are only
saying that. I would believe it if they got a letter from the wildlife agency
saying, oh, no, we are only exempting your possession: we can't extend it to
your selling to a museum. But that's clearly not the situation. They obviously
have every ability to sell to, e.g. the museum currently displaying it, and it
will be approved.

they're trying to use a technicality - that it's "technically" illegal. don't
do that. if they were serious they wouldn't even possess it, since that's
"illegal" too. read the article carefully to see what I mean.

~~~
techsupporter
You're missing two key understandings of the Bald and Golden Eagle Protection
Act: First, the Act allows museums and similar institutions to own and
transport bald eagles. Second, the article states that the bird was acquired
prior to the Act taking effect in 1940. That means that current possession is
legal, provided that it doesn't change ownership. For a similar situation,
look at zoning laws. A property can be "legal nonconforming" because it was,
at one time, in compliance with zoning laws but is not any longer. Why?
Because both types of laws carry criminal penalties and it is unconstitutional
to retroactively make something a crime. The artist can keep the bird, will it
to his heirs (generally, passage to one's heirs doesn't trigger "change in
ownership" laws), and do the other trappings of ownership but No One Else Can
who isn't able to comply with the law, like a museum. Ergo, his heirs can't
sell it except to the museum. The museum isn't willing or able to buy it--the
piece is already on loan to them for free--so there is no market and,
therefore, no value.

~~~
its_so_on
Where do you get the idea that museums wouldn't or couldn't purchase the work,
assuming this purchase is OK'd by the government first - which given the
history here and the work in question the family can easily count on?

Your comment doesn't make sense in light of the fact that the family was
forced to put the work on display, which doesn't sound like they "can do the
other trappings of ownership but No One Else Can".

The article says: "Indeed, the only reason Mrs. Sonnabend was able to hold
onto 'Canyon', Mr. Lerner said, was due to an informal nod from the United
States Fish and Wildlife Service in 1981. {P} Even then, the government
revisited the issue in 1998. Rauschenberg himself had to send a notarized
statement attesting that the eagle had been killed...before the 1940 law went
into effect. Mrs. Sonnabend was then able to retain ownership as long as the
work continued to be exhibited at a public museum. The piece is on a long-term
loan to the Metropolitan Museum of Art in New York, which Mr. Lerner said
insures it, but the policy details are confidential."

This does not sound to me like it matches what you are saying at all. Quite to
the contrary, it sounds like this work is quite special and important and for
this reason was given these exemptions - this makes it quite likely for a sale
to a museum to be approved, and the family has every reason to believe this.

So we must return to why you would say that a museum wouldn't or couldn't buy
it (after saying earlier in your comment that museums were allowed to own such
works, though the article does not make this blanket statement.)

~~~
rprasad
Your arguments have no basis in the law *as it exists in this reality. The law
makes it a felony to sell or possess bald eagle remains. The only reason that
family still "has" this art piece is because actual possession of the art
piece lies with the museum; the family retains "legal" ownership but cannot
ever actually exercise possession without violating the law.

The family does not have a reason to believe that a sale to a museum would be
approved since that would be a clear exception to the explicit text of the
law. The prior "exception" does not change this because it does not actually
conflict with the terms of the law.

You need to either (1) learn the law or (2) stop pretending like you know what
you are talking about. Armchair lawyers like you ruin the discussion of legal
articles on HN.

~~~
its_so_on
Maybe you're right.

I will just say that if it were me in this situation, I would never in a
million years go on an art appraiser's word that I 'can't' sell it, without
even asking the appropriate agency.

------
its_so_on
another question. If the IRS values it at so far above its true price, can't
they simply donate it and write off the inflated price - which come straight
from the IRS - off of the taxes they owe on real-value, non-contraband works
they also inherited? (they're not even allowed to "possess" this work under
the law.)

Likewise if in an inheritance I got a stone that the IRS decided was an anti-
tiger stone worth $100m, couldn't I just donate it to a non-profit tiger
research institute, write it off of things I got with real non-baloney market
value, and the IRS simply loses out due to their inflated price on the baloney
good?

Doesn't the IRS acting like a joke with overvaluations cut both ways?
(assuming there's real value somewhere that's worth keeping if you write off
the taxes on it.)

i.e. if the irs's valuation on something happened to be inflated by vast
multiples - as people in this thread are saying happens from time to time -
then can't you donate that and write it off of things that they aren't
inflating?

~~~
ahelwer
"Mr. Lerner said that since the children assert the Rauschenberg has no dollar
value for estate purposes, they could not claim a charitable deduction by
donating “Canyon” to a museum."

------
Kroem3r
Ya, that's some ugly sh*t. Also, that's not a bald eagle. It does look like a
vulture.

