Robert Rauschenberg’s “Canyon” is a work of art that historians have studied and cherished for over fifty years. The piece was owned by Ileana Sonnabend, a New York art dealer, until she died in 2007 at the age of 92. Considering the myriad or works she owned, her estate was totaled at $876 million, however, the Canyon was priced at $0. This is due to the collage bearing a stuffed bald eagle, which prohibits the work from being legally sold. It would violate two federal laws protecting bald eagles and result in the seller and purchaser to spend some time in the federal penitentiary. Considering the item is invaluable, it became quite a surprise when the estate received a Notice of Deficiency last October for an additional $29 million in tax and an $11.7 million gross valuation misstatement penalty for not reporting the “Canyon.”
The IRS has a special committee of experts – the Art Advisory Panel – to appraise certain pieces of art. The Panel appraised “Canyon” for $65 million even though the piece of art cannot be legally sold. The IRS Director of Art Appraisal Services told the top art lawyer representing the estate that “there could be a market for the work, for example, a recluse billionaire in China who would like to buy it and hide it.”
This insight seems extremely esoteric and impractical. However, Stephanie Barron, senior curator of 20th-century art at the Los Angeles County Museum of Art, argued the group evaluated “Canyon” purely on its artistic value without any reference to the restrictions or laws associated with selling it. She furthered her argument by saying it is a “stunning” work of art that should have every right to be valued. Although a big hole in their argument is the fact that the eagle is not valued at all.
Ralph E. Lerner, the primary lawyer for the estate, has been arguing that the IRS has been trying to come up with different excuses to taxing the piece of art. At first “Canyon” was valued at $15 million by an auditor with an unsigned report. Then the estate received a $65 million assessment which was explained by the “billionaire in China” excuse.
“The government is saying we want $35 million in tax but if you sell it to get the money, we’ll put you in jail” said Lerner.
The Sonnabend estate appealed the tax bill in U.S. tax court but litigation will be delayed to see if the parties can negotiate a settlement. There are certain items the IRS can tax that have a certain black or illicit market value like stolen art, stolen jewels, artwork with a protected antiquity. However, this piece of art is not stolen or belonging to a foreign government, thus the IRS’s argument seems like an uphill battle. The estate also has an immaculate record in terms of tax law where $331 million has been paid to the federal government in estate tax and an additional $140 million to the state of New York.
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