Xillary Twill of Art Asset Management Group sent me a Wealth Management post on the Rauschenberg/Sonnabend estate valuation situation. It is a few weeks old, but it gives a very good review of the situation from as estate planners perspective. It briefly looks at the eagle protection act, fair market value, the IRS's position, treasury regulations and negative value. Well worth the few short minutes it takes to read.
Wealth Management reports
Source: Wealth ManagementThe first rule of reading Treasury regulations is always to read on. Treas. Regs. Section 20.2031-1(b) continues: “Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Under this rule, the market to consider for “Canyon” is the United States art market, dominated by the major auction houses. But then, of course, no major auction house would accept the piece for sale, given the statutory prohibition on sale and criminal penalties.
The IRS’ black market analysis, applied in Private Letter Ruling 9152005 (Aug. 30, 1991), to medieval artworks taken from Europe as booty after WWII, doesn’t apply to “Canyon.” The work’s renown precludes a secret sale out of public view. “Canyon” isn’t likely to disappear unnoticed. And, Sonnabend did nothing to suggest participation in the black market. Rather, the opposite is true. The taxpayer was wholly compliant with the regulatory scheme, obtaining the appropriate permit when the Eagle Protection Act was seen to apply.
So, the peculiar facts confront the IRS with this quixotic query: What is the FMV of an object for which federal law prohibits any market, anywhere in the world? Does the object have an FMV determined by some other standard? Can the taxpayers be charged for the aesthetic enjoyment of ownership separate and apart from any ability to buy and sell the actual property? The answer is NO!
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