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Art's sale value? Zero. The tax bill? $29M
- ksherlock 7y ago[2012]
- dang 7y agoAdded. Thanks!
- gwern 7y agoLooks 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/rauschenbergscanyon-value-in-the-eye-of-the-beholder https://www.thelegalpalette.com/home/2018/7/17/rauschenbergs... https://www.moma.org/explore/inside_out/2014/01/24/diving-into-rauschenbergs-canyon/ https://www.moma.org/explore/inside_out/2014/01/24/diving-in... 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 7y agoIn 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.
- jacobush 7y agoOn the other hand a lot of “old” ivory is sold which is actually from recent butcher.
- michaelt 7y agothe 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_1918 https://en.wikipedia.org/wiki/Migratory_Bird_Treaty_Act_of_1... [2] https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protection_Act https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protecti... [3] https://www.fws.gov/pacific/eagle/permit_types/exhibition_dead.html https://www.fws.gov/pacific/eagle/permit_types/exhibition_de...
- vorpalhex 7y agoThe issue is that any loophole can and will be exploited by folks with a lot of money and an amazing amount of lawyers. One bad apple ruins the whole bunch.
- flomo 7y agoSounds like the IRS was trying to encourage/strongarm the owners to charitably contribute the piece to a museum by offering them a fat deduction. Yay. (Probably would have better to have this unsalable art owned by the American people in the Smithsonian or somewhere, but good enough.)
- close04 7y ago> by offering them a fat deduction A deduction from a number that they "invented". If appraisers (and basically the market) say the value is 0 but the IRS says it's $65 million who is right? What if you have a regular piece of art that's appraised at say $1 million but the IRS says it's $1 billion? It appears the IRS's evaluation always stands. If so it's a perfect method to strong-arm at will. > Last fall, the agency sent the family an unsigned draft report that it was valuing “Canyon” at $15 million. After Mr. Lerner replied that the children were refusing to pay, the I.R.S. then sent a formal Notice of Deficiency in October saying it had increased the valuation to $65 million. And the strong-arming.
- Simon_says 7y agoI say let the IRS put any value they want on it, but then give the owner an option to sell it to the IRS at that price that the IRS can’t refuse.
- Ensorceled 7y agoHeck, even at a 10% discount. e.g. the IRS claims this is worth $65 million so there is an explicit offer to buy at $58.5 million and the IRS can make a bundle on the taxes and then on selling it for its "real" value.
- asveikau 7y agoIf I take that to its logical conclusion: do you believe the IRS should be expected to have the funds to purchase every conceivable asset at market price?
- inlined 7y agoIf they had contacted the IRS first they could have either gotten it in writing as valued at $0 or made the charitable donation ahead of tax season, lowered their gains, and sold fewer art pieces to pay their tax bill.
- olliej 7y agoI 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 7y agoQuite obviously the value is greater than zero. Even if you can’t sell something it can have value.
- kijin 7y agoIf it doesn't make you any money but costs money to maintain, its value might even be negative.
- Rychard 7y agoSomething is only worth as much as someone is willing to pay. Seeing as how it's a felony to buy it, nobody is going to offer anything for it publicly.
- evandijk70 7y agoThere might be a way to make money from the painting without selling it. For example, are they allowed to rent it out to a museum?
- ruste 7y agoThen the money earned leasing it out would be taxable, but you still can't sell it so there's still an issue with taxing its value
- shitloadofbooks 7y agoIt might be a fake and be worth $0. Since the IRS are considering hypothetical black market sales, they should consider that it's hypothetically a forgery too.
- dang 7y agoDiscussed at the time: https://news.ycombinator.com/item?id=4276518 https://news.ycombinator.com/item?id=4276518
- mehrdadn 7y agoInteresting point here that it actually might have been sellable: https://news.ycombinator.com/item?id=4276980 https://news.ycombinator.com/item?id=4276980
- sumobob 7y agoInteresting read, fair point that they are already breaking the possession part of the law but have received a special dispensation, they could apply and receive a dispensation for the sale as well.
- crystaln 7y agoSo 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- 7y agoYou can refuse to accept an inheritance. It goes to whoever is next in line. If everybody refuses, the state gets to keep it.
- anticensor 7y agoYou only get to refuse inheritance in full in most jurisdictions. You do not get to pick and choose to refuse.
- H8crilA 7y agoIn such case the right thing to do would be to default on the IRS debt and let the IRS reposes the artwork. Then report a crime and watch the ensuing flames between US government departments.
- 7y ago
- rootsudo 7y agoSince it's a liability, why not just destroy it? Or is that an insult to art?
- rosser 7y agoInsult 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 7y agoCan 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 7y agoThe benificiaries of an estate are not taxed; the estate is. So the estate would likely still owe taxes.
- magduf 7y agoOk, 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?
- C1sc0cat 7y agoBurn it ala the KLF and the million pounds
- dingo_bat 7y ago> Heirs to important art collections are often subject to large tax bills. 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. I'm confused. They owe half a billion dollars in taxes just because they inherited an art collection? Surely the tax should be owed only when you sell it?
- ssalka 7y agoCouldn't they have given it as a gift? No money involved.
- omnimus 7y agoI am pretty sure US tax law does not work that way.
- Terr_ 7y agoWhat 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.
- PeterisP 7y agoGifts are generally fully taxable as income, with a bunch exceptions for e.g. small amounts and nonprofit donations. If this was gifted to someone, that person would be liable for $29m income tax.
- zamfi 7y agoThis 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 7y agoThis 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 7y agoThey 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 7y agoThere is no way you could justify assigning value to something on the grounds that "if laws change then it has value."
- brohee 7y agoYou 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...
- StormFiber 7y agoIn 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. https://www.mangazuki.online/manga/the-boy-in-the-all-girls-school/ https://www.mangazuki.online/manga/the-boy-in-the-all-girls-...
- ForHackernews 7y agoIt'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?
- taneq 7y agoOh god, don't give them ideas or the next time someone receives a donated kidney they'll have to declare it as taxable income.
- koliber 7y agoI 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 7y agoThat 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 7y agoThere 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.
- mikorym 7y agoI 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.
- jbverschoor 7y agoYep. Art, shoes, bitcoin.. all financial products. They should tax coupons as well
- brokensegue 7y agohttp://mentalfloss.com/article/26838/why-are-coupons-worth-1100th-cent http://mentalfloss.com/article/26838/why-are-coupons-worth-1... Sure but they are basically worthless
- CriticalCathed 7y agoHonestly, for that amount of money I'd renounce my citizenship and move to another country then sell it there. Stupid law.
- p49k 7y agoRenouncing your citizenship involves first settling any tax obligations, so that would get you nowhere.
- ginko 7y agoPlus you're almost certainly going to be charged with animal smuggling when trying to cross the border with it.
- frittig 7y agoof course if you get caught participating in a terrorist group while abroad, you may get your citizenship stripped for free. I think that I saw that suggestion on Reddit once
- ricree 7y agoNote that this only for naturalized citizenship, and even then only for a limited time afterwards. As I understand it, the prevailing precedent of the Supreme Court is that revoking citizenship is something that a person must willfully do with the intention of having their citizenship revoked. This wasn't always the case, as it used to be that Congress could declare revoking actions that applied even without intent. So it's possible that this could change, but it's been the case for over half a century and unlikely to change anytime soon.
- lightbyte 7y agoBe careful, you also run the risk of getting assassinated by drone strike like Anwar al-Awlaki did.
- gamblor956 7y agoCitizenship is separate from tax residency. So you'd end up stateless but still owing US taxes.
- mamon 7y agoOk, 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.
- Pyxl101 7y agoJust 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 7y agoIm 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 7y agoSo 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 7y agoOnly 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.
- gamblor956 7y agoNo, it could not be gifted to a company as that transfer of ownership would be legally invalid. The children only had ownership due to a special dispensation granted to their ancestors (not them) and the dispensation didn't include the right to transfer ownership to others.
- RepAgent 7y agoCOST 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 7y ago> 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 7y agoIs 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?
- barrkel 7y agoBecause it gives wealthy people power to take things that poor people love.
- hmmhm 7y agoHN 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.
- hamilyon2 7y agoI own a kidney.
- brokensegue 7y agoDid you inherit it?
- blatherard 7y ago(2012)
- justin66 7y agoFile under "estate planning actually matters."
- harimau777 7y agoDisclaimer: 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.
- gizmo686 7y agoThe first $11 million of an estate ($22 if it is a couple's estate) is already tax free. If you inherit stock, or land, or any other money making asset, it does not make sense to not tax it just because it was not sold.
- harimau777 7y agoGood point! I definitely think it would make sense to make an exception to a hypothetical "you aren't taxed until you sell it" rule for things that are either directly analogous to wealth (e.g. stocks) or that directly generate wealth (e.g. a factory or business). I could also see land and housing being an exception, although I also don't like the idea of someone being forced to sell the family homestead. Do you know if they appraise the value of things like land based on its current use or potential use? For example, what if the value of the mineral rights for the family homestead was much greater than the residential value?
- Navarr 7y agoEven if they can't sell it though, the article says they're leasing it. I'd be surprised if it were being leased for free. If that's the case it is generating some sort of money. Taxes like this exist to prevent the hoarding of wealth through generations
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- dsfyu404ed 7y agoMiddle 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 7y agoThey 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.
- thedaemon 7y agoI 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.
- TheOtherHobbes 7y agoThe 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-sentencing.html https://www.nytimes.com/2019/02/14/arts/design/mary-boone-se... https://www.wsj.com/articles/art-dealer-larry-gagosian-settles-over-sales-taxes-for-4-3-million-1468976952 https://www.wsj.com/articles/art-dealer-larry-gagosian-settl... 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.
- oldstrangers 7y ago"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.
- ska 7y agoHow else can you structure things then, without allowing this to be a loophole to avoid estate taxes entirely? Assuming you are rejecting the entire idea of estate taxes, I suppose.
- justin66 7y ago> 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 7y ago> 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.
- pesfandiar 7y agoSeems like bad estate planning when the bulk of inheritance is illiquid rare assets, unless you think the tax itself is ridiculous which is a completely different topic.
- ska 7y agoDefinitely. Someone with north of 1b in an estate should have had better estate planning, you would think.
- tolstoshev 7y agoThey should have just sent the piece to the IRS as payment.