Interesting tax question: Should art be valued what it is technically worth (in this case, the appraisers are right in my opinion: It is worth zero dollars since any sale of it is illegal) or what it would be valued at on the open, non-law influenced market? Several important folks came to my same decision: "Since the artwork couldn't be sold, logic dictated that it be listed as having zero value, which is what the Sonnabend family's three appraisers, one of them Christie's auction house, did."
Ultimately, the IRS prevailed by simply insisting that this thing that could never be legally sold had an unimaginably high value. Now, as many of you can probably tell judging by my past writing, I think this was an overreach of power. First of all, as it appears from the art in the picture, it just isn't very good. Oh, look! A stuffed-ish eagle in front of what looks like a canyon. Let's call it art!
Now, of course, I have no taste, so let's ignore that argument. How do we evaluate value for things we can't sell? Several experts came to my same conclusion (it is worth nothing), yet other experts came to a different answer. What's the right and proper evaluation?
Let's look at another angle of this. We want people to preserve art; it is good for the culture for us to preserve things. Even the Smithsonian is getting into the act of preserving video games. To encourage this, we allow art as a tax exempt purpose that non-profits can pursue. In this, specific case, the IRS forced a private collector to essentially hand over what the IRS was calling millions of dollars to another private entity solely through coercive tax measures. That is a situation ripe for potential abuse that should be remedied. We need clearer, cleaner ways to determine how things are evaluated.
Here's a third angle: Is it possible for the government to artificially increase the price of art through legislation by restricting its sale? If the government were to tax fine art (or, say, repeal the Hollywood tax cuts), could we increase the "value" of art so high that the IRS is able to collect even more in revenue from things like this inheritance situation?
Let's say next year, a private collector routinely audits his collection and finds out that a recent acquisition from a dead relative is actually a forgery. Should this well-made fake continue to be taxed as though it was an original, or should the man receive a tax refund for the, most likely, monumental difference in value?
Art is expensive, and the tax laws surrounding it are equally difficult to navigate. But, in regards to Canyon, it seems like the IRS was given a simple, easy to understand solution: Things that can't be sold legally should have no value associated with them. Why? Because if there is a high value associated with the piece, it encourages people to do things with it they may not want to do. What if the owners were in desperate need of funds; the IRS has told them they have a valuable paper-weight that is a constant drain on their finances sitting around. Why should they not try and find a buyer who has no real moral compunctions around breaking a law that shouldn't even apply to this piece? Obviously, it is still illegal, but why should we create this situation?
This is just some random rambling as I move back to a regular blogging routine. Until Christmas. Then, everything goes screwy again. I also wanted an excuse to use the Matt's Economics tag again.