Don’t “possess” it or “sell” it — but do pay $29 million in taxes on it

by Walter Olson on July 24, 2012

…there is one item in the collection [of the late New York dealer Ileana Sonnabend], a work by Robert Rauschenberg that cannot be sold. It contains a stuffed bald eagle and under the terms of the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Act, it is a felony to “possess, sell, purchase, barter, transport, import or export any bald eagle — alive or dead.” The estate, advised by three experts, including one from Christie’s, therefore, valued the work at zero. The IRS decided it was worth $65 million, and is demanding $29.2 million in taxes and $11 million in penalties because the heirs “inaccurately” stated its value.

[John Steele Gordon, Commentary on NYT reporting; Popehat]

{ 11 comments }

1 boblipton 07.24.12 at 6:21 am

Give them the eagle, ask for the change and then call the FBI on them.

Bob

2 spo 07.24.12 at 8:32 am

There is so much petty tyranny in this country.

3 Hugo S. Cunningham 07.24.12 at 8:42 am

Can those being assessed the tax demand full settlement by surrendering the piece in question to the IRS? If not, the law needs to be changed, or overturned on Constitional grounds.

4 Scott 07.24.12 at 9:03 am

@boblipton It would be illegal for them to give it. They’d have to have the IRS take or seize and then call the FBI.

This good property crime. Something that on the black market has value but when appraised has no value.

5 Dwight Brown 07.24.12 at 10:44 am

I’m not a tax lawyer. (Actually, I’m not a lawyer of any kind.)

But: the NYT article seems to imply that the mere possession of the art may be illegal, and that everyone’s pretty much just looked the other way for years.

If the family let Fish and Wildlife seize the art, as a violation of whatever law covers the possession of stuffed bald eagles, could they then take a tax deduction for the IRS valuation of the seized artwork as a loss?

6 NickM 07.24.12 at 2:44 pm

What they should really do is to contact the Smithsonian. I’m confident that this piece wold be accepted into the collection. All problems go away at that point.

7 Death is a Taxable Event 07.24.12 at 3:00 pm

The typical test of value for the estate tax is a willing buyer and willing seller in an arm-length transaction with neither party being compelled to sell or buy.

The IRS is totally wrong in their position and I’d wager that the tax court will side with the taxpayer.

But in estate and gift tax audits and examinations lately I’ve found the IRS to be taking more and more unreasonable positions in an attempt to raise revenue.

It’d be good for business if this is a trend.

8 LisaMarie 07.24.12 at 7:00 pm

The first thing I thought was donation, too. But the NYT story I read said that since the heirs are claiming the work has a value of $0, they cannot donate it and claim it has worth for a tax writeoff.

9 doug 07.24.12 at 7:07 pm

tell the govt to come and get the eagle and then destroy the rest of it.

10 Death is a Taxable Event 07.25.12 at 9:57 am

Donation wouldn’t work even if the the heirs were allowed to use the IRS value and were allowed to transfer the piece. They would still owe the $29.2 million in estate taxes and the $11 million in penalties now. They would each get a share of the $65 million as an income tax deduction, but would be limited to taking only 50% of AGI as a deduction each year.

And the estate tax rates are higher than the income tax rates, so even if they could get a current deduction they’d be out the difference in the rates.

11 gitarcarver 07.25.12 at 1:53 pm

Did anyone but me notice that the evaluation of the piece went up after the family decided to fight the IRS on this?

Mr. Lerner said that the I.R.S.’s handling of the work has been confusing. 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.

Source: NY Times article.

I could be reaching or putting on a tin foil hat, but this seems to be another case where the government increased the penalties in retaliation for someone speaking out and fighting the government.

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