IRS Art Advisory’s Bizarre Dispute over Collage

Robert Rauschenberg’s famous collage “Canyon,” which was part of the estate of art dealer Ileana Sonnabend, still faces IRS dispute regarding its true value. Although Sonnabend’s total worth was reported at $876 million at the time of her death in 2007, it included an appraisal of $0 for “Canyon,” based on outside appraisals. These appraisals were based on the fact that the collage’s stuffed bald eagle could not legally be sold and the seller would be violating two federal laws protecting bald eagles. Sonnabend received a permit in 1981 to retain the collage and lend it to museums. It is currently hanging in New York’s Metropolitan Museum of Art.

A Notice of Deficiency was sent to the estate last October, in which the IRS valued “Canyon” at $65 million and demanded an additional $29 million in tax. It also included an $11.7 million “gross valuation misstatement” penalty. The IRS determines values of art work with the assistance of the Art Advisory Panel, made up of independent experts appointed by an IRS official, the Director of Art Appraisal services.

The IRS went so far as to invent a Chinese billionaire as a conjecture to show how the piece of art could be sold. When Ralph E. Lerne, top art lawyer representing the estate, contacted Joseph Bothwell, the IRS Director of Art Appraisal Services at the time, to contest the tax, Mr. Bothwell responded by suggesting that “a recluse billionaire in China might want to buy it and hide it.”

The estate has since appealed the tax bill in U.S. Tax Court and the case has been put on hold to see if both parties can negotiate a settlement.

Although the government has asserted that contraband items in an estate can be valued for an estate tax at their black market value, the deceased normally demonstrates a preparedness to sell on the black market. This is far from Sonnabend and her heir’s case.

As those involved in the case demonstrated no disposition to violate any laws, paid over $331 million in Estate Tax to the US and $140 million to New York and resisted playing any games, the case is exceedingly sympathetic to the taxpayer. It would be best for the government to bend on this one.


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