July 23, 2012

"What is the fair market value of an object that cannot be sold?"

"The object under discussion is 'Canyon,' a masterwork of 20th-century art created by Robert Rauschenberg that Mrs. Sonnabend’s children inherited when she died in 2007."
Because the work, a sculptural combine, includes a stuffed bald eagle, a bird under federal protection, the heirs would be committing a felony if they ever tried to sell it. So their appraisers have valued the work at zero.

 But the Internal Revenue Service takes a different view. It has appraised “Canyon” at $65 million and is demanding that the owners pay $29.2 million in taxes.

“It’s hard for me to see how this could be valued this way because it’s illegal to sell it,” said Patti S. Spencer, a lawyer who specializes in trusts and estates but has no role in the case.

58 comments:

Pogo said...

Catch 22, gummint style.

I say give the IRS the sculpture, and call it even.

Phil 3:14 said...

The punch line would be the Smithsonian offering to take it off their hands.

rhhardin said...

It falls under the contradiction tax.

The more you tax something, the less of it you have.

This tax gets rid of contraditions.

rhhardin said...

Give it to a bank in return for a toaster.

The bank can then offload it to the Federal Reserve under TARP.

Matthew Sablan said...

I thought the standard for tax law was always pay then litigate, or is that just for certain things? While it is a wonky standard practice is still standard practice.

Harsh Pencil said...

Answer to how much the sculpture is worth: Ask the family how much it is worth to them. The tricky part is getting them to tell the truth.

One way is using a random number generator that puts, say, 99% probability on A and 1% probability on B.

If it says A, the family keeps the sculpture. B, it goes to the government and the family gets compensated by what they said it was worth.

If they say zero, then if B comes up, they lose the sculpture (but if A comes up, they pay no taxes.)

If they say a billion dollars, then if B comes up, they get a billion dollars, but if A comes up, they pay a huge amount in taxes.

Didn't say this was legal or fair or right, but it will get a value.

traditionalguy said...

The government tax collection terrorists are mean as snakes. Their dreams of pillaging of the property owners is about to escalate as the Obama Robbery Regime sees its hold over governing its captives is about to end.

The Estate Tax escalates from 35% to 60% on estates that had 0% in 2010. And the exempt estates plummet from the first 5 million to 1 million.

The uprising of the raped (the taxed) is overdue.

Meanwhile the Regime is supersizing the IRS Stormtroopers and proudly converting a large part of the Marine Corps into a Law Enforcement Shock Troops...For overseas work only, they pretend.

That may sound paranoid. But why are they doing it. It has NO legitimate reason!

BAS said...

What they need to do is donate it to a museum before the IRS comes to their senses. The appraisal value is $60mil, so now the government will owe them money on it.

Matthew Sablan said...

BAS: But they'll still owe the penalties, etc. They address that option on page 2 of the article.

MayBee said...

They can't sell their sculpture because it has a stuffed bald eagle, but absolutely nothing happens to wind farms that kill bald eagles.

The government wants to collect tax dollars from the people who own the bald eagle art. The government gives tax dollars to the wind farms that kill the birds.

rules run amok

Bruce Hayden said...

Reminds me of my experiences as a tax auditor for the city of Denver, several careers back, some 35 years ago.

My job was to audit personal property tax reporting. Personal property used in trade or business was taxable, but not taxable if not so used. That means that a table used at the office is taxed, while one in your living room is not.

Normally, it was fairly straight forward - we went with the purchase records for the property, automatically applied depreciation, etc., and then did the tax. I ultimately separated from that agency because I would find the city owing a refund too often. Apparently, we were only supposed to look for underpaid taxes, or something like that.

In any case, one day I showed up at a business a couple blocks off of 16th street downtown. The outside didn't look upscale, but noticed a set of armor on the way up the stairs. Turned out to be authentic 14th/15th century Spanish armor. The rest of the office was similarly equipped. Hundreds of thousands of dollars (in 1975 dollars) in furniture in a fairly small office.

Turned out that the owner of the company, who had (twice) built what may still be the most exclusive shopping center in Denver, had this very expensive, hand crafted furniture shipped in from throughout the world. The table in the reception area had come from a trip to China, etc., and he had paid maybe $25k for it. That sort of thing.

His wife had died, and he had had several break-ins at his mansion a couple blocks from his shopping center. So, for insurance purposes, he had moved the furniture downtown to his office. And, yes, technically, he was using it in his business.

Exhibiting the sort of behavior which would ultimately lead to my separation from the agency, I did what I thought was the right thing - I assessed the furniture at its utilitarian value - $75 for that table in the reception area, etc. Don't remember what I did with the set of Spanish armor though.

Aridog said...

The Bald and Golden Eagle Protection Act is very clear on the subject of the bald eagle ... it is illegal to even possess one dead or alive with out government permission, such as rescues and sanctuaries obtain...e.g., for measurable benefit to both the species and the public.

How the family has managed to keep possession until now is dubious at best:

A.) allegedly because the eagle was shot and stuffed by a member of Teddy Roosevelt's Rough Riders,(although I could find no "grandfather" clause in the Act) attested to a "notarized" document (like a grand jury, you can notarize a ham sandwich)

B.) Because the "art" with the eagle in it is on public display, and since 1998 that feature is why Fish and Wildlife have not already confiscated it (public benefit).

The family is wrong and the IRS & Federal Government are wrong on this piece of dubious "art." The family cannot own it or possess it. It should be confiscated and destroyed in accordance with the law. Period.

I'm sure lawyers will have a different point of view that I do ... mine is just that of an ordinary citizen, who has wildlife preservation prejudices, reading a fairly simple piece of legislation.

Rusty said...

"A thing is worth what that thing can bring."


If it has no value it generates no tax. They need a tax attorney.




Never. Never. Never .Never. Ever. Go into a tax meeting with the IRS yourself. Always,ALWAYS, have your accountant or tax attorney go instead. The default position with the IRS is that you owe. It is up to you to prove that you don't.

Rick Caird said...

They should buy a bank and give the statue to the Fed as collateral for a loan. It is certainly worth more than some of the other worthless assets the Fed has taken as collateral.

William said...

The beast must be fed.

This illustrates the fierce urgency of tax collection.

If our prolific spending continues expect even more desperate and aggressive measures for revenue collection - both in terms of procedure and scope (this situation is an example of scope). All of this being carried out under the auspices of criminal sanction.

Aridog said...

@Rusty ... to your advice add several other USG agencies, such as EPA, for example, where "code" is "interpreted" from legislation, often without foundation in legislation. Always take a lawyer specializing in the field to be contested. ALWAYS.

Under "Rule Made" findings, you are always guilty until you can prove your innocence, if you can afford to do that.

Been there, done that, got the tee shirt (my zero balance final statement from IRS is framed on my office wall).

traditionalguy said...

Art collecting of renowned new local artists has hit a burst bubble time worse than Real Estate.

Collecting art is itself a classic bubble.

Without a greater sucker to pay more, it has no market. Charitable Donation with inflated appraisals made to universities and cities for display around campus and in parks has also run out of takers.

Nobody wants junk that is going down in value. Cash is king.

gerry said...

Without a greater sucker to pay more

And look at that piece of crap!

Bryan C said...

"The family is wrong and the IRS & Federal Government are wrong on this piece of dubious "art." The family cannot own it or possess it. It should be confiscated and destroyed in accordance with the law. Period. "

Then we'll burn all the antique pianos with ivory keys, scrimshaw art, feathered American Indian handicrafts, furniture with exotic wood veneers...

But, alas, Congress cannot make ex post facto laws. You can't make something retroactively illegal and then steal it from the owner. Regulatory agencies regularly flout this, because they can, but they're in the wrong, both constitutionally and morally.

Frankly, I think the prohibition on selling long-dead wildlife is preposterous. All you're doing is ensuring that anyone who really wants one for private display will have to obtain it illegally. If buying an old, stuffed specimen is just as illegal as killing a fresh one, then, well, I guess you might as well kill a fresh one. How does that help wildlife?

Aridog said...

@Bryan C ... pretty sure here, that The Bald and Golden Eagle Protection Act does not include "...all the antique pianos with ivory keys, scrimshaw art, feathered American Indian handicrafts, furniture with exotic wood veneers..."

You are correct that agencies flout the ex post facto concept in their rule making. Rules become "codified" and act as law ...as you say, because they CAN do it. In this case, the proof of when the eagle was stuffed is dubious, and the purported owners cannot re-possess it from the museum without confiscation by Fish & Wildlife.

Thus, the IRS is wrong that it has value and the family is wrong that they can possess it. Do away with it and the "problem" is solved.

C. Marie said...

The Green Bay Packers cannot legally be sold or moved. Does that mean they have no economic value? What about value to the owner, the person who enjoys something on a daily basis? Selling something in a free market is only one way of valuing a product.

Aridog said...

What about value to the owner, the person who enjoys something on a daily basis?

Hopefully, that concept won't find its way in to the IRS Code....taxing **emotional value** would be one scary idea.

traditionalguy said...

A possible solution is an large open space in need of some new art work at Beaver Stadium.

They first rename the bald eagle a "Plucked Turkey" and then rename the stadium Plucked Turkey Memorial Stadium.

It is reported that Bobby Bowden offered to donate the costs for making the switch.

FleetUSA said...

Yep, the fair market value is the price agreed between an unrelated willing buyer and a willing seller.

In this case there would be no legitimate willing buyer. Hence, ZERO value.

MadisonMan said...

The Green Bay Packers cannot legally be sold or moved. Does that mean they have no economic value?

What a straight line for Trooper. (sigh)

Darrell said...

Can it be sold overseas?
I assume that there are places on Earth that would allow possession.

raf said...

What they need to do is donate it to a museum...

If they donated it to the Obama campaign, perhaps the IRS could find a way around the problem.

edutcher said...

The moral of all this is that Michele Bachmann was right about The Mother Of All Repeal Bills and a big part of it ought to be all the laws passed to curry favor with the enviro-nuts.

edutcher said...

PS tg, you are really losing it. The IRS will tell you they just enforce the law - which is true.

In fact, the Problem Resolution Office of any IRS Center is more interested in getting the thing resolved so they get some of the money rather than hounding you to get every last penny.

Michelle Dulak Thomson said...

Aridog,

Bryan C ... pretty sure here, that The Bald and Golden Eagle Protection Act does not include "...all the antique pianos with ivory keys, scrimshaw art, feathered American Indian handicrafts, furniture with exotic wood veneers..."

No; but other Federal laws do. Believe me, there have been serious legal wrangles involving musical instruments, including (yes) the importation of pianos with ivory keys, and I think also string instrument bows. Apart from carbon-fiber bows (mine are CF, from a company called Arcus), all good bows are made from pernambuco wood, on which there are similar import restrictions.

Our piano (with ivory keys) was imported (by someone else; we bought it only a few years ago) decades before the restrictions on importing ivory came into effect. Importing a similar instrument now, however long ago it was made, would be a major hassle.

(BTW, it isn't an "antique," unless something made in the late 1940s is now counted as such.)

bagoh20 said...

Taxes are so often just immoral.

I intend to give my business to the employees upon my death, if not sooner, but so far my lawyers have not found a way to do it without a devastating tax that would destroy the business in the process. People would lose their jobs so that the government can take a big chunk of what these people have worked to create for decades. All those years the business paid millions upon millions of tax dollars, and now they want more even if it destroys the golden goose and robs people of their life's work. This, among other things, is what makes Obama's quote from last week so infuriating. It's just evil.

Ken said...

The best answer for this is to eliminate the death tax. That the government takes from dead people simply because it can is disgusting.

The government doesn't allow its citizens to keep what we earn. We, the citizens, allow the government to take part of our wages to pay for certain necessary government functions. A cash hungry oversized government does not fit that bill.

Eustace Chilke said...

Anyone who values this display of trash above zero hasn't seen it - or else is an art professional. Or a tax collector.

Michelle Dulak Thomson said...

As to the Rauschenberg case: I say that if you can't legally sell it, it ought to be valued at zero for tax purposes. It appears that here the unlucky inheritors of this thing actually do have the means to pay the bill the IRS has stuck them with, but what if they did not? Suppose it were Joe and Jane Schmoe who inherited something the IRS decided was worth $65M, and had to come up with $29M to cover the tax on the "value" of something they couldn't legally sell? "Gee, thanks, Mom ..."

Entirely OT, but I think I would pay actual money not to look at that. Not $29M, though.

Eustace Chilke said...

Anyone who values this piece of trash above zero hasn't seen it - or else is an art professional. Or a tax collector.

Steven said...

Res tantum valet quantum vendi potest.

Take the IRS agents involved, and hang them from the nearest lampposts, pour encourager les autres.

Aridog said...

@Michelle Dulak Thomson ... I'm not saying there aren't other laws and codes with issues. That is not the topic of the original post.

I AM saying that in this particular case, the solution was simple ... it has no value, it is illegal, and if disposed of, there'd would have been no problem ... now even if disposed of, I'm pretty sure the "penalty" would still stand as due the IRS. Another blessing of our "rule making" new world order.

I'm simple minded, so I'll just go along with @Ken and say that the very idea of inheritance taxes is anathema. You make that point yourself in your next comment.

Eustace Chilke said...

My son makes makes and repairs violins. He can't learn to make bows from the best pros in the business. The reason is because the best in the business all live in Brazil. The best wood for making bows can't be imported except as finished products. It's likely that even this use will be banned which would destroy the bow making craft in Brazil. Bow makers are busy planting trees to save their livelihood. I'll be surprised if they succeed, whether or not they succeed in their effort to support the tree species. Hindering human activity seems to be the prime directive of eco loons regardless of all else - including the benefit of nature.

tmitsss said...

so what is the value of the deduction if donated to say the University of Wisconsin?

Chip S. said...

C. Marie said...
Selling something in a free market is only one way of valuing a product.

Correct. The other way is to calculated the present value of the cash flows generated by the asset.

You get the same answer either way here, unlike the case of the Packers.

Aridog said...

Michelle Dulak Thomson said...

...the unlucky inheritors of this thing actually do have the means to pay the bill the IRS has stuck them with, but what if they did not?

Actually they apparently can only do so by selling off roughly half of the inheritance so far.

For the lawyers here: Can a beneficiary legally *refuse* an inheritance? If so, what happens to it?

traditionalguy said...

edutcher...My assessment went easy on the IRS. You must not have encountered any of the affirmative hire assholes they empower in the last 20 years.

They know that they are a terrorist organisation. They pretend you owe taxes and use every bureaucratic trick in the book.

Unless the IRS Commisioner is a connected person with your elite law firm, your going to lose to set an example of their power of crucifiction over the innocent.

There are clients who sent out for sandwiches for working lunches on some days for several years and were IRS assessed the unpaid FICA and withholding for the free food for their employees ate as unreported wages. Factoring in the penalties and late paymenyt calculation, $1500 in free food became a $45,000 tax owed.

And the nice IRS terrorists kept using as an excuse a hateful envy of the immigrant business man was creating jobs and making money in America.

In Obama/Soros/Pelosi's eyes we are all immigrant businessmen today.

Aridog said...

@ traditionalguy ... guess you've not noticed my occasional comments regarding the "rule making" in federal agencies that stand as law, literally. Trust me on this, the IRS, as wayward as they might be at times, are pikers compared to agencies such as the EPA where penalty dollars assessed are concerned. You are guilty until you can prove your own innocence under "rule making." It is not just the IRS, it is all agencies with *rule making power.

I'm a retired military and "Fed" person and could say a lot more, but my druthers are to not see the gray suits at my door.

wyo sis said...

Too bad it can't get struck by lightning and burn up. When that's the only solution to a tax problem we're in a bad place.

William said...

I have a Solomon like solution to this problem. Donate it to the museum where it is currently being exhibited. Take the appraisal value as a tax deduction. Apply that deduction towards the rest of the estate.

William said...

I have a Solomon like solution to this problem. Donate it to the museum where it is currently being exhibited. Take the appraisal value as a tax deduction. Apply that deduction towards the rest of the estate.

Scott said...

Aridog: IANAL, but yes, you can disclaim an inheritance. Then the next person down the estate's food chain gets to do it. This thing could get stuck in probate court for decades.

What if a fire destroyed the thing? You wouldn't get any insurance money (it's appraised at zero) but you could claim a $65 million tax loss. Unless that would make the IRS change its mind again.

Aridog said...

@Scott ... okay, so if all beneficiaries decline the inheritance, I presume it reverts to some form of escheats.

In other words, it is still tantamount to a government taking of property. Period.

Chip S. said...

The stupidity involved in this case is impressive.

That [appraisal] figure came from the agency's Art Advisory Panel, which is made up of experts and dealers and meets a few times a year to advise the I.R.S.’s Art Appraisal Services unit. One of its members is Stephanie Barron, the senior curator of 20th-century art at the Los Angeles County Museum of Art, where “Canyon” was exhibited for two years. She said that the group evaluated “Canyon” solely on its artistic value, without reference to any accompanying restrictions or laws.

“The ruling about the eagle is not something the Art Advisory Panel considered,” Ms. Barron said, adding that the work’s value is defined by its artistic worth. “It’s a stunning work of art and we all just cringed at the idea of saying that this had zero value. It just didn’t make any sense.”


IOW, a group of fine-arts majors pulled a number out of their collective asses rather than face up to the fact that government regulations had rendered the thing financially worthless.

bgates said...

They can't sell their sculpture because it has a stuffed bald eagle, but absolutely nothing happens to wind farms that kill bald eagles.

The government wants to collect tax dollars from the people who own the bald eagle art. The government gives tax dollars to the wind farms that kill the birds.


The government also takes money from better producers of energy, and gives money to worse producers of art.

Rusty said...

Selling something in a free market is only one way of valuing a product.


It is the only way of establishing value.




Suppose you own a gold mine. Are you taxed on the supposed value of what is in the ground or on the realization of its value when sold?

Skullsplitter said...

So their appraisers have valued the work at zero.

Since "Canyon" is insured at a value greater than zero, I don't see any reasonable basis for the position that the work has zero value.

Dust Bunny Queen said...

If the object in question has market value it is included in the value of the estate for taxation for the market value at the time of death.

But...since this object has NO market value, cannot be sold, and is basically an interesting but valueless piece, I don't see how the IRS can justify setting an arbitrary, non market value.

(as if that would stop the IRS anyhow)

In addition the reason it has no market value is completely the fault of the government.

Chip S. said...

Skullsplitter said...
Since "Canyon" is insured at a value greater than zero, I don't see any reasonable basis for the position that the work has zero value.

That's an interesting point.

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.

Cool. First the government takes away the resale value of your property. Then it requires you to surrender the aesthetic services yielded by the property to a museum, which realizes some unmeasured income stream from exhibiting the property. Finally, b/c the museum insures against loss of the property that the "owner" has been forced to lend to it, the owner's estate faces a tax liability of $29 million.

That's impressive work by the government right there. It's the financial equivalent of being strip-searched by the TSA, then arrested by the local cops for indecent exposure.

Sigivald said...

Bryan said: But, alas, Congress cannot make ex post facto laws. You can't make something retroactively illegal and then steal it from the owner. Regulatory agencies regularly flout this, because they can, but they're in the wrong, both constitutionally and morally.

A prohibited ex post facto law purports to make behavior that was legal at the time a crime now.

A legal - if stupid - ban on possession of an object makes it a crime or civil offense to do so from the moment of the law's passage [or with some grace period].

That both make possession of an object a crime or offense does not make them the same thing, and the ban on possession of eagle parts does not constitute an ex post facto law as long as it doesn't pretend that possession before the law's passage constitutes a crime.

MadisonMan said...

Shouldn't be a stuffed eagle. Should be a stuffed albatross.

Foobarista said...

The fun part is the IRS basically says they could sell it to a Chinese collector on the black market. So, to pay the taxes, they have to sell the thing illegally.

So, if you're a drug kingpin's kid and inherit a few tons of cocaine, you'll have to get busy dealing, because surrendering the coke to the cops won't help you escape the taxes.

Rob said...

The I.R.S. consistently loses this kind of case with regard to valuation. If it can't be marketed, it has no FMV. However, this is a perfect illustration of the confiscatory nature of the Federal Death tax.