Can you imagine inheriting something that you cannot sell but that the IRS wants $29 million in estate taxes on?
That’s the dilemma facing the heirs of famed art dealer Ileana Sonnabend. When Sonnabend died in 2007 at age 92, included in her considerable art collection was the Robert Rauschenberg piece, “Canyon.” The work includes a stuffed bald eagle.
Now, follow closely:
It is a federal crime to buy or sell a bald eagle–alive or dead.
So, since the heirs could go to jail if they tried to sell the work–after all, they’d be breaking the law!–they gave the piece a value of zero.
But the IRS said, hey, our experts tell us that on the open market, that piece is worth $65 million. So give us $29.1 million in estate taxes & penalties. We don’t care whether or not you can legally sell the thing–you still have something worth millions of dollars.
Could the heirs just give the work away to a museum? After all, it’s already on loan to the Metropolitan Museum of Art in New York.. Maybe–but remember, if the work has no value as the heirs say, there would be no charitable deduction. And the IRS could still try to assess tax on its own value assessment.
When I was a pup in the wonderful world of tax prep, I learned about the concept of determining fair market value based on what a willing buyer and a willing seller would agree to pay for something. I don’t know how you determine value when any willing participant would have to be willing to run the risk of prison time.