Tuesday, December 4, 2012
As I have previously discussed, Robert Rauschenberg's work "Canyon" was in the midst of a battle between the estate of art dealer Ileana Sonnabend and the IRS. The conflict arose from the unusual fact that the central piece of the artwork is a stuffed bald eagle. This ensures that the piece of art cannot be sold without violating "the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Treaty Act." The estate concluded that because Canyon could not be sold it was not worth anything for tax purposes. However, the IRS concluded that someone might be willing to purchase Canyon, and so it valued the collage at $15 million. It would later choose to increase Canyon's value to $65 million when the Sonnabend's estate refused the first valuation amount.
Faced with a large tax without the ability to sell the work to pay for the tax the estate had two options. They could either pay the large tax or they could donate Canyon to a museum. They choose the second option by donating it to New York's Museum of Modern Art. Sonnabend's heirs declared that the collage had no value, which would forfeit any charitable deduction that the estate might otherwise been allowed to take. In exchange, the IRS agreed to drop its tax claim against the estate.
See Eric Gibson, Eric Gibson: the Illegal Eagle and a Baldly Grasping IRS, The Wall Street Journal, Dec. 2, 2012.
Special thanks to Douglas Cowan (Manager, International Tax Group, Washington National Tax, Deloitte Tax LLP) for bringing this article to my attention.