4 ms·

The end goal is that everything gets donated and written off. Here's the basic scheme: * 10 rich guys buy 100 paint splotch canvases from a dude who wears blac

by duado 8y ago

The end goal is that everything gets donated and written off. Here's the basic scheme: * 10 rich guys buy 100 paint splotch canvases from a dude who wears black and smokes cigarettes * they keep 90 canvases in their basement and sell 10 of them back and forth to each other for increasing sums of money, paying taxes along the way * when the prices are at $20 million per painting, they donate all of them, including the 90 in the basement (which appreciated just by exchanging the 10) for $2 billion in combined tax writeoffs

tomp 8y ago
This implies that donated art basically has an arbitrary valuation (set by "experts" based on some not really free or transparent "market"). Is this true? How is this handled for other assets?
- mdorazio 8y ago
  See here [1]. It's based on qualified appraisal and/or valuation of similar works at known auctions. [1] https://www.journalofaccountancy.com/issues/2010/jul/20092096.html https://www.journalofaccountancy.com/issues/2010/jul/2009209...
- duado 8y ago
  If Pierre's paintings are being exchanged regularly by a bunch of hedge fund guys for $20 million each, isn't $20 million the market price of a different, arbitrary, painting from Pierre? It isn't really a problem for other assets because they don't have the museum donation market that's key to the scheme working. You can't find a charity who is looking for superyacht donations.
  - eeZah7Ux 8y ago
    > isn't $20 million the market price Not at all: to have a "market" you need buyers, sellers and goods to be fungible. In your example buyers and sellers are only 0.000001% of humanity: other people cannot afford to play this game. Also the goods are unique. Brand new paintings would not be sold by the author him/herself at that price 99% of the time. They skyrocket in value only when sold between billionaires. https://en.wikipedia.org/wiki/Market_(economics) https://en.wikipedia.org/wiki/Market_(economics)
drcode 8y ago
I agree that makes 100% sense.
IanCal 8y ago
Thank you, this is the first time I've seen anyone explain this including the last part, other things I've seen leave that out and without it there's no benefit.
nkurz 8y ago
It's an interesting theory, but I'm not sure the details work. If the goal is making lots of money, and one is able to pump up the price of an artists works by 1000%, wouldn't one come out farther ahead by selling (at least a few) of the paintings to outsiders, rather than donating all of them? While it seems possible that flooding the market with all 100 paintings at once might crash the price down more than the tax writeoff is worth, it seems unlikely that this would happen on the first sale. The counterargument would have to be that there doesn't actually exist any outsider who would pay anything close to the claimed value for the work. Another odd aspect of this is that once individuals own a substantial numbers of works by an artist, it's in their interest to keep the price high for that artist's works. So if a new painting comes up for auction, they would benefit by never allowing it to be sold for a low price --- even if that means "overpaying" for the new painting. So maybe the end game is that the minority owners start to sell, knowing that the majority owners have to buy, and only after all the works have single ownership (with a record of high sales prices) sales does the donation scheme happen. Interesting. I presume others have analyzed these strategies in depth?
- kd0amg 8y ago
  wouldn't one come out farther ahead by selling (at least a few) of the paintings to outsiders, rather than donating all of them? GP's suggestion seems to be that non-conspirators would not actually be willing to pay that much -- a bit like a pump-and-dump scheme, but only the IRS gets duped.
- duado 8y ago
  I've simplified the strategy. Imagine instead of all 100 paintings being from Pierre, imagine one canvas each from Pierre's last 100 sexual partners. The entire art market can crash, sure, but because of the easy outlet of a museum + IRS, the price is insured by the value of the painting as a tax shield.

by duado 8y ago

tomp 8y ago

This implies that donated art basically has an arbitrary valuation (set by "experts" based on some not really free or transparent "market"). Is this true? How is this handled for other assets?

mdorazio 8y ago
See here [1]. It's based on qualified appraisal and/or valuation of similar works at known auctions. [1] https://www.journalofaccountancy.com/issues/2010/jul/20092096.html https://www.journalofaccountancy.com/issues/2010/jul/2009209...
duado 8y ago
If Pierre's paintings are being exchanged regularly by a bunch of hedge fund guys for $20 million each, isn't $20 million the market price of a different, arbitrary, painting from Pierre? It isn't really a problem for other assets because they don't have the museum donation market that's key to the scheme working. You can't find a charity who is looking for superyacht donations.
- eeZah7Ux 8y ago
  > isn't $20 million the market price Not at all: to have a "market" you need buyers, sellers and goods to be fungible. In your example buyers and sellers are only 0.000001% of humanity: other people cannot afford to play this game. Also the goods are unique. Brand new paintings would not be sold by the author him/herself at that price 99% of the time. They skyrocket in value only when sold between billionaires. https://en.wikipedia.org/wiki/Market_(economics) https://en.wikipedia.org/wiki/Market_(economics)

drcode 8y ago

I agree that makes 100% sense.

IanCal 8y ago

Thank you, this is the first time I've seen anyone explain this including the last part, other things I've seen leave that out and without it there's no benefit.

nkurz 8y ago

It's an interesting theory, but I'm not sure the details work. If the goal is making lots of money, and one is able to pump up the price of an artists works by 1000%, wouldn't one come out farther ahead by selling (at least a few) of the paintings to outsiders, rather than donating all of them? While it seems possible that flooding the market with all 100 paintings at once might crash the price down more than the tax writeoff is worth, it seems unlikely that this would happen on the first sale. The counterargument would have to be that there doesn't actually exist any outsider who would pay anything close to the claimed value for the work. Another odd aspect of this is that once individuals own a substantial numbers of works by an artist, it's in their interest to keep the price high for that artist's works. So if a new painting comes up for auction, they would benefit by never allowing it to be sold for a low price --- even if that means "overpaying" for the new painting. So maybe the end game is that the minority owners start to sell, knowing that the majority owners have to buy, and only after all the works have single ownership (with a record of high sales prices) sales does the donation scheme happen. Interesting. I presume others have analyzed these strategies in depth?

kd0amg 8y ago
wouldn't one come out farther ahead by selling (at least a few) of the paintings to outsiders, rather than donating all of them? GP's suggestion seems to be that non-conspirators would not actually be willing to pay that much -- a bit like a pump-and-dump scheme, but only the IRS gets duped.
duado 8y ago
I've simplified the strategy. Imagine instead of all 100 paintings being from Pierre, imagine one canvas each from Pierre's last 100 sexual partners. The entire art market can crash, sure, but because of the easy outlet of a museum + IRS, the price is insured by the value of the painting as a tax shield.