Wednesday, July 25, 2012

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

Been meaning to mention Patricia Cohen's front-page story on the IRS's attempt to collect $29 million in estate taxes on a Rauschenberg "combine" that, because it includes a stuffed bald eagle, cannot legally be sold.  (I mentioned this a couple months ago here.)

Felix Salmon thinks the IRS's mistake here is thinking that "[i]f a work has great artistic value, ... it must have great financial value as well."  Interestingly, the fourth comment to Salmon's post is under the name "josephbothwell."  Joseph Bothwell is the former director of the IRS’s Art Appraisal Services unit.  I don't know if the commenter is the real Bothwell, but he says "the idea that great art has zero monetary value is just silly," concedes that "there are interesting issues in this case," and "invites all to read Robson v. Commissioner, Tax Court Memo 1997-176," which he says "makes it clear that a market has to exist, not necessarily that one has to have legal access to that market."  But in that case (which involved the sale of "mounted animal specimens," which was illegal in the taxpayers' home state of California) the Tax Court specifically found that, despite California law, "there is a market throughout the United States for items comparable to those donated by the [taxpayers]."  There was testimony in the case that "prices for game mounts in California are equivalent to prices in States that do not place restrictions on sales.  Thus, the restrictions imposed by California law do not materially affect the value of [taxpayers'] game mounts."  The Court concluded that "an active market exists throughout the United States for substantially comparable items."  That's a lot different than positing a hypothetical reclusive Chinese billionaire.  Where is the evidence of a real active market for the work at issue here?