
Art's sale value? Zero. The tax bill? $29M - ValentineC
https://www.nytimes.com/2012/07/22/arts/design/a-catch-22-of-art-and-taxes-starring-a-stuffed-eagle.html
======
gwern
Looks like the ultimate resolution was that the IRS dropped it in exchange for
it being formally donated to the MoMA, so essentially just solidifying the
status quo:
[https://www.thelegalpalette.com/home/2018/7/17/rauschenbergs...](https://www.thelegalpalette.com/home/2018/7/17/rauschenbergscanyon-
value-in-the-eye-of-the-beholder)
[https://www.moma.org/explore/inside_out/2014/01/24/diving-
in...](https://www.moma.org/explore/inside_out/2014/01/24/diving-into-
rauschenbergs-canyon/)

Since the heirs couldn't sell it and it was forced to be on display in a
museum, seems like it made very little difference, while allaying the IRS's
theoretical concerns about it potentially being sold on the black market, I
guess...

~~~
wickerman
In all fairness the article details that the original owner was able to own
the piece in the first instance on very shaky grounds, getting a nod from the
right people in the Fish and Wildlife service:

"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."

I appreciate the intent behind the law, but this is one of those situations
where a sensible argument could be made that a stuffed bird from before the
law was put into place is hurting no one.

~~~
michaelt

      the original owner was able to
      own the piece in the first
      instance on very shaky grounds
    

The Migratory Bird Treaty Act [1] and Bald and Golden Eagle Protection Act [2]
both allow permits, issued by the Fish and Wildlife Service, for possession of
the protected birds.

This is used, for example, to allow museum exhibitions and Native American
religious ceremonies. There's even a special form [3] to apply for the permit!

So long as the eagle is in a museum that meets the requirements of the eagle
exhibition permit, the ground seems pretty firm to me!

[1]
[https://en.wikipedia.org/wiki/Migratory_Bird_Treaty_Act_of_1...](https://en.wikipedia.org/wiki/Migratory_Bird_Treaty_Act_of_1918)
[2]
[https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protecti...](https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protection_Act)
[3]
[https://www.fws.gov/pacific/eagle/permit_types/exhibition_de...](https://www.fws.gov/pacific/eagle/permit_types/exhibition_dead.html)

------
RepAgent
COST model popularized by Glen Weyl and Eric Posner would be perfect tax for
these kind of assets. COST is a form of Harberger Tax that ensures that the t
property is more productively utilized by the society.

This is how COST works:

1\. The owner can determine what the value of the asset is. They can over or
underestimate the value as much as they want.

2\. The owner pays some percentage of that valuation as tax. If they value the
asset very low, they pay very little taxes.

3\. The catch. Anyone can buy the property at any time at the owner determined
valuation. If you don't want anyone to buy your assets, you must value it more
than other people and and pay taxes for the value.

EDIT:

It seems that many people think that COST type private property tax would
extend to personal property or could be applied without modification to
housing for poor people etc. Personal possessions are not taxed in any place
of the world and tax deduction make sure that small personal properties can be
owned without paying tax.

The system requires some adjustments, for example property taxation might be
somewhat different. Vitalik Buterin discusses these issues in his review of
the book:
[https://vitalik.ca/general/2018/04/20/radical_markets.html](https://vitalik.ca/general/2018/04/20/radical_markets.html)

~~~
chii
> Anyone can buy [it]

i think that can open up some issues with people's assets that also have
sentimental value.

I think instead of "anyone", it should be just the govt. If your appraisal
seems too low, then the gov't reserves the right to purchase the asset instead
of charging you the owed tax.

~~~
RepAgent
Is there a reason why sentimental value should not be taxed?

I mean, you would not extend the taxation to personal holdings with little
value or moderate value (automatic tax deduction of $2,000 per person from
COST would probably be enough) but if someone wants to keep something very
valuable for sentimental reasons, why the feeling should not have a value put
on it?

~~~
harimau777
A couple of thoughts:

The question can easily be turned around: why should sentimental value be
taxed?

It seems to me that protecting the things that are important to someone is a
core purpose of society. Forcing someone to choose between the security of the
things that are important to them and their financial wellbeing would
undermine that.

The justifications for a high tax rate don't seem to apply to inheritance of
items that have high sentimental value but low utility. Since the property
does not have great utility, taxing it does not moderate income inequality due
to inheriting capital. Both the idea of a higher tax rate on people who have
more and the idea that it is justified to tax things higher that people didn't
earn seem like an odd match for property that is high in sentimental value.

~~~
lmm
The tax burden is supposed to fall on those who are most able to bear it.
Funding our society necessarily means inflicting a certain amount of misery on
the citizens; the tax rates are supposed to share that misery out in a more-
or-less equitable way.

Someone who has a lot of valuable things is better off than someone who
doesn't, and so we demand a greater share of tax from them. It seems to me
that that logic goes through exactly the same whether that value is nominal or
sentimental.

------
TheOtherHobbes
The subtext is that the IRS has become more aggressive towards the high-end
art market because of previous scams.

For example: [https://www.nytimes.com/2019/02/14/arts/design/mary-boone-
se...](https://www.nytimes.com/2019/02/14/arts/design/mary-boone-
sentencing.html)

[https://www.wsj.com/articles/art-dealer-larry-gagosian-
settl...](https://www.wsj.com/articles/art-dealer-larry-gagosian-settles-over-
sales-taxes-for-4-3-million-1468976952)

There have been some clever plays in this market. For example, the dealer swap
- two dealers agree to bid up each other's pieces at auction. The final sale
prices are inexplicably very close, so they swap the pieces without moving
much money around.

The market as a whole sees a much higher price - so they've made a few (tens
of) millions on the assessed value of the pieces and also (probably) raised
the value of future auctions of work by the same artist.

All for the cost of the auction fees.

------
zamfi
This is the same kind of logic that taxes private company stock gains on
vesting even if the stock isn't sellable, if the "official" value at vest
exceeds the grant value.

Whether you can sell something to cover the taxes just doesn't seem relevant
to the IRS!

~~~
taneq
This is what boggles my mind - what is the "value" of something if not the
amount of money you can sell it for? If you can't sell something and it
doesn't generate you any revenue then its value is zero.

~~~
kurtisc
They couldn't sell it currently, if the law changes in the future (or if it
can be moved to another jurisdiction) then it could be sold for a non-zero
value.

~~~
Teknoman117
There is no way you could justify assigning value to something on the grounds
that "if laws change then it has value."

~~~
brohee
You do, it's factoring the fact that something that cannot be sold legally can
still has black market value, which is definitely the case for stolen art and
antiques, protected species etc...

~~~
taneq
So new parents should be deemed to have received whatever a baby’s worth on
the black market?

------
mikorym
I think something similar could happen with stockpiled rhino horns, but I
daresay that African countries (apart from corruption problems) are somewhat
more pragmatic than the IRS.

It's a contentious issue to say the least, and differs from the illegal ivory
trade in one important way: ivory is a tooth, but a rhino horn is keratin and
can grow back. Dehorning rhinos are a common practice to discourage poaching.

------
harimau777
Disclaimer: My parents own a lot of art which I would like to keep when they
pass.

Even outside of this specific situation where the art cannot be sold, it seems
questionable to me to tax something that could likely have great personal
value to someone but not great monetary or utility value to them.

It seems to me that a good solution would be to change the law so that
property which is inherited is only taxed if it is sold within the first 10
years or something.

~~~
justin66
> it seems questionable to me to tax something that could likely have great
> personal value to someone but not great monetary or utility value to them.

If it doesn't have great monetary value, the taxes won't amount to much. The
only thing that makes this case interesting is that the IRS appraisers were
completely off the mark, something that will (one hopes) be resolved in court.
If they can get the IRS to agree with the the auction houses that the thing is
basically worthless, they can keep the hideous thing in their living room
forever without paying anything.

~~~
harimau777
I was meaning monetary value specifically to the person inheriting it. That
is, if they have no intention to sell it and its not something that generates
money for them on its own (e.g. a factory or machine).

------
crystaln
So if this piece were the only thing you inherited and you were broke, you
would owe the Irs $29M and have no way to pay it. Your heirs will repeat this
exercise unless you donate it - and still owe the taxes.

~~~
f-
You can refuse to accept an inheritance. It goes to whoever is next in line.
If everybody refuses, the state gets to keep it.

~~~
anticensor
You only get to refuse inheritance in full in most jurisdictions. You do not
get to pick and choose to refuse.

~~~
kijin
Hence GP's counterfactual, "if this piece were the only thing you inherited
and you were broke".

~~~
jacobush
Sad though to refuse a 500k USD house with a negative 29 million USD bird in
it.

------
dang
Discussed at the time:
[https://news.ycombinator.com/item?id=4276518](https://news.ycombinator.com/item?id=4276518)

~~~
mehrdadn
Interesting point here that it actually might have been sellable:
[https://news.ycombinator.com/item?id=4276980](https://news.ycombinator.com/item?id=4276980)

------
oldstrangers
"In this case, the beneficiaries, Nina Sundell and Antonio Homem, have paid
$471 million in federal and state estate taxes related to Mrs. Sonnabend’s
roughly $1 billion art collection, which included works by Modern masters from
Jasper Johns to Andy Warhol. The children have already sold off a large part
of it, approximately $600 million worth, to pay the taxes they owed, according
to their lawyer, Ralph E. Lerner."

This is the worst part of the article to me. Forced to sell your inheritance
to pay the taxes on it... Seems ridiculous.

~~~
justin66
> Forced to sell your inheritance to pay the taxes on it... Seems ridiculous.

I don't get it. Would it seem less ridiculous if we were talking about cash
instead of art, and they were simply paying the taxes out of those funds? Or
is it more of a "death tax bad" thing?

~~~
erikpukinskis
> Would it seem less ridiculous if we were talking about cash instead of art

Yes of course. Cash has no sentimental value. Only cash value. Possessions
have both.

I guess the same thing happens to people when they are forced to sell their
grandmas wedding ring to pay off her inheritance taxes.

------
ForHackernews
It's not the art, it's the stuffed bald eagle that's at issue here. The piece
is obviously valuable but there's a prohibition on selling it.

Consider analogously human organs for transplant: clearly valuable, but we've
decided to disallow their sale. What's the appraisal value of a kidney?

~~~
koliber
I wonder if there is an opportunity for derivative financial instruments based
on valuable things that can not be transferred.

Think company stock in a private company. It may not be possible to sell it
due to bylaws or legal limitations, but it may be possible to borrow against
it.

What if there was a market for loans based on valuable but non-transferable
things?

It all hinges on the question of whether something will eventually be
transferable. You can make an argument that the laws that limit the transfer
of ownership could be changed in the future.

~~~
Nasrudith
That sounds like a hillariously stupid loophole to get around selling in this
case - something to use very passive aggressively about the strict liability
eagle cult laws which are utterly irrelevant to conservation like stray
feathers as felonies.

Take out a nominal very short term loan with the not-buyer backed by the
collateral and never pay it back. Said item will transfer then.

It thankfully won't apply to current ivory or rhino horn bans given import
bans but it would probably work to "jailbreak" from home owners associations
from hell given the repossesor wouldn't be bound by a contract they never
signed.

~~~
koliber
There is a difference between ownership and control. The ownership would not
transfer in such a case, as it can not due to law. However, control would.

------
Pyxl101
Just curious: could ownership of the art be gifted to a company, and then
ownership of the company itself could be sold? Where specifically would this
run afoul of the law? Curious to know.

~~~
batmenace
Im guessing since the art would be on the company's balance sheet as an asset,
a sale of the company would include the sale/ transfer if its assets, thus
breaching the law saying the birds cannot be sold.

~~~
Pyxl101
So does this mean that companies could possess toxic poison pill assets that
make it illegal for anyone to buy the company? That seems wrong. Maybe a nice
way to prevent a hostile takeover?

~~~
Qwertystop
Only if they could somehow gain access to things which are illegal to buy,
without buying them. So even if this works, that would mean the only companies
that could use that to prevent hostile takeovers are the ones where someone
involved in the company happens to already own an unsellable thing by
grandfather clause.

------
justin66
File under "estate planning actually matters."

------
dsfyu404ed
Middle manager A at the IRS F-d up going all out trying to tax this piece of
art.

Slightly higher middle manager B cared far less but because A forced his hand
he can't say "well upon further consideration we value it at $0" because that
would piss of middle manager C who wants to maintain the "image of the IRS" or
something like that.

So they reach the "compromise" of "well if you donate it then you don't have
to pay" which partially satisfies A, B and C yet is total BS considering that
these people (whoever they may be, rich jerks have rights too) have been
forced to give up possession of their property because some bureaucrat decided
this was worth pursuing.

Typical office politics. You see this pattern all the damn time in big
organizations.

~~~
gamblor956
They only had ownership of this illegal-to-own item because of a special
dispensation granted to their ancestors that allowed ownership so long as it
was in the possession of a museum (i.e., the only lawfully allowed owners of
such items in the US).

The issue here was never possession--the children would never have been
allowed to actually possess the eagle. The issue was ownership and how much
value the eagle had as an _owned_ item.

------
hamilyon2
I own a kidney.

~~~
brokensegue
Did you inherit it?

------
rootsudo
Since it's a liability, why not just destroy it? Or is that an insult to art?

~~~
rosser
Insult or not, destroying it is irrelevant to any tax liability it might have
triggered upon inheritance; it still came into their that way. If you
inherited a Picasso, you'd still owe tax on it, whether you hung it, or tossed
it in a fire.

~~~
koliber
Can someone clarify something?

A person owns things. When they die, the legal person ceases to exist. The
things they owned are now owned by a new legal entity called "the estate."
Inheriting something is the formal act of transferring ownership from the
estate to the people who end up inheriting things.

If something is in the ownership of the estate and it gets destroyed, stolen,
or lost, how will it be treated for tax purposes at the time of settling of
the estate?

~~~
gizmo686
The benificiaries of an estate are not taxed; the estate is. So the estate
would likely still owe taxes.

~~~
magduf
Ok, so what happens if the estate consists solely of a single piece of art?
The art is worth zero, no one wants to buy it, but the heir would like to have
it for sentimental reasons, but the IRS says it's worth $100M. The estate has
no money to pay this tax bill. Now what happens? The IRS gets stuck with a
piece of worthless art? Is there some warehouse somewhere with a bunch of old
crap seized this way that the IRS can't get rid of?

------
thedaemon
I haven't seen any comments stating how ridiculous it is to tax a work of art.
This is what gets me, not the 0 ~ $29 Million valuation. But that art is
taxable. I better burn all of my artwork, every doodle is worth what; $100,
$1000, in taxes? Insanity.

------
tolstoshev
They should have just sent the piece to the IRS as payment.

------
ssalka
Couldn't they have given it as a gift? No money involved.

~~~
Terr_
What do you mean? The inheritance itself is already a gift, it just happens to
be a gift from a dead person who might or might not be related to the
recipient.

I'm not just being poetic, they are actually connected in the tax code.
Untaxed inheritance and untaxed gifts come from a similar lifetime limit,
after which they are taxed.

------
mamon
Ok, so if the guy actually tries sell the piece on black market and gets
caught, will IRS be prosecuted for aiding and abetting the crime? By issuing
$29M tax bill they are basically encouraging him to do that.

------
blatherard
(2012)

------
ksherlock
[2012]

~~~
dang
Added. Thanks!

------
jbverschoor
Yep. Art, shoes, bitcoin.. all financial products. They should tax coupons as
well

~~~
brokensegue
[http://mentalfloss.com/article/26838/why-are-coupons-
worth-1...](http://mentalfloss.com/article/26838/why-are-coupons-worth-1100th-
cent)

Sure but they are basically worthless

------
CriticalCathed
Honestly, for that amount of money I'd renounce my citizenship and move to
another country then sell it there.

Stupid law.

~~~
fortran77
There's a 30% expatriation tax!

[https://www.irs.gov/individuals/international-
taxpayers/expa...](https://www.irs.gov/individuals/international-
taxpayers/expatriation-tax)

North Korea isn't the only state that makes it hard for citizens to leave....

~~~
magduf
My reading of this page shows that this only applies to really wealthy people.
You had to have been paying over $160K in income taxes every year before you
left, or have a net worth of over $2M. Of course, if your net worth is a
whopping $100K plus some worthless artwork that the IRS says is worth $50M,
you might have a problem...

~~~
brokensegue
Inheritance tax only applies to the really wealthy also

------
olliej
I appreciate the person on the IRS valuation board saying "we didn't consider
the eagle issue" "saying it was worth $0 made us cringe". WTF?

The only reason to be on a valuation committee is to give a real valuation.
Its got nothing to do with whether or you like the market value.

~~~
the_mitsuhiko
Quite obviously the value is greater than zero. Even if you can’t sell
something it can have value.

~~~
scarejunba
Yeah but this is a priori absurd. They can't sell it, they don't want it, and
you tax them for getting it? Insanity.

~~~
Nasrudith
That seems to be a very common bureaucratic flaw - the absurd position is
maintained out of interest because of their job.

This is well known but the real question is how to prevent that in a reliable
way that doesn't open up more problems?

~~~
qtplatypus
It is more that the absurd position is maintained because their jobs is to
execute the law. If the law is absurd then you get absurd results.

------
hmmhm
HN has an unhealthy slant towards giving more consideration toward rich
people's problems, such as this.

Also, per the guidelines, an HN submission should be something that "gratifies
one's intellectual curiosity". An edge case in US taxation that could affect
only those wealthy enough to have an art collection doesn't really fit that
definition.

