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Art’s Sale Value? Zero. The Tax Bill? $29 Million.
- temphn 14y agoUnusual 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_Rauschenberg%27s_%27Canyon%27%2C_1959.jpg http://upload.wikimedia.org/wikipedia/en/7/74/Robert_Rausche...
- raverbashing 14y agothe 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 14y agoSo the IRS are pirates now? Are copyright Pirates still pirates? What about(Somali) pirates pirates?
- rat87 14y agoI thought Joe the Plumber owed lots of back taxes before he started squawking.
- yummyfajitas 14y agoAccording to Wikipedia, he owed the taxes (to Ohio, not the IRS) but was likely unaware of it. https://en.wikipedia.org/wiki/Joe_the_Plumber#Tax_controversy https://en.wikipedia.org/wiki/Joe_the_Plumber#Tax_controvers... It was Ohio Job&Family Services and the Highway Patrol which started trying to dig up dirt on him in retaliation for his criticism of Obama, not the IRS.
- bluekeybox 14y agoDon't give them too much credit though; they had to wait five months until the tax season is over, and people forget about the original story that appeared in Forbes: http://www.forbes.com/sites/janetnovack/2012/02/22/the-irs-invents-a-chinese-billionaire/ http://www.forbes.com/sites/janetnovack/2012/02/22/the-irs-i...
- rprasad 14y agoThe IRS computer system was built in the 1970s. It does not have the capabilities you ascribe to it. Consequently, the IRS still uses the following system to determine who to audit: (1) errors in their returns, (2) types of income, and (3)randomly based on type of return.
- deleted 14y ago[deleted]
- Kroem3r 14y agoYa, that's some ugly sh*t. Also, that's not a bald eagle. It does look like a vulture.
- forrestthewoods 14y ago471 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.
- rat87 14y ago> 471 million in estate taxes on a $1 billion collection? That's depressing. Why?
- kevingadd 14y agoEven assuming they can find buyers for enough of the collection to pay the taxes, that's an enormous, instantaneous pile of stress on the children of a parent who just died and is probably missed tremendously. Hey kids, I hear your parent died? Great! You owe us 500 million dollars, get to work. I think estate taxes are defensible, but the way this particular estate was handled doesn't seem defensible. Out of all the things someone could do with their vast fortunes, buying art and then loaning it out to museums and collections doesn't seem like the worst thing in the world. In particular, the article points out that black market valuations may have even been considered when valuing the art in the estate: That means the government is basically encouraging these works of art to be sold on the black market (likely to private collectors who will keep them in private), where if they were at least sold on the open market - or in this case, held by the original owners - they would be more likely to be put on loan to museums so the public could benefit from them. Alternately, in a case like this where it's illegal to sell the item being taxed, the government should offer the option of simply handing it over to them in order to erase the tax liability, or giving it to a charity, in order to conclusively demonstrate that no profit is being made from the work of art (black market or otherwise).
- megablast 14y agoYes, because it is instantaneous, and not months down the line.
- its_so_on 14y agoThis 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 14y ago>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 14y agoIt'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.
- Al_xss 14y ago'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 14y agoThe 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.)
- deleted 14y ago[deleted]
- Inufu 14y agoThe 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 14y agoAssuming 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 14y agoHow can you earn interest on Art?
- Evbn 14y agoThat's the whole point. To eliminate aristocracy by imposing a three generation limit on inheritance.
- pavlov 14y agoAccording 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 14y agoEven 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.
- its_so_on 14y agoanother 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 14y ago"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."
- ck2 14y agoThose 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 14y agoYou seem to be implying that the rich don't deserve to be able to have income. It sounds very sour grapes.
- pookeys 14y agoIt 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 14y agoThe 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 14y agoIf 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 14y agoIt's slightly less effective.
- wallflower 14y agoIf 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-l.html http://michaelovitz.blogspot.com/2011/04/weve-featured-this-... http://www.metmuseum.org/toah/works-of-art/1998.329 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/dp/0230620590 http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary... [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..."