When New York art dealer Ileana Sonnabend passed away in 2007 her children inherited an art collection valued at about 1 billion dollars. One of the pieces, “Canyon” by 20th century artist Robert Rauschenberg included a portion of a stuffed bald eagle. Due to the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Treaty Act, it would be a felony for the children to sell the piece. Since it appeared non-saleable, the art appraisers valued the piece at “zero”for estate tax purposes. The IRS rejected this valuation and its Art Advisory Panel then valued “Canyon” at $65 million and currently seeks $29.2 million in taxes including a healthy amount in non-payment penalties.
I think the IRS is getting really greedy. The children already paid $471 million in federal and state taxes related to their mother’s art collection which included works by Jasper Johns and Andy Warhol. They had to sell off a large portion of the art collection to raise the taxes owed. The IRS has also been inconsistent. A year ago, the IRS sent the family an unsigned draft report valuing Canyon at $15 million and when the children refused to pay citing the unsaleable condition of the piece, the IRS increased their valuation to $65 million. The IRS does not have to rely on the Art Advisory Panel’s valuation. In about 7 % of cases, the IRS does not follow the Panel’s opinion.
An important query relates to how the Panel arrived at the $65 million figure. Generally comparable sales are used to determine the value of the work based on the willing buyer, willing seller rule. However in this case there is some speculation that black market sale value was considered which brings into question the entire valuation process. We are all waiting expectantly to see what happens next.