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Comment by gwern | Hacker News Reader

Looks like the ultimate resolution was that the IRS dropped it in exchange for it being formally donated to the MoMA, so essentially just solidifying the status quo: https://www.thelegalpalette.com/home/2018/7/17/rauschenbergs... https://www.moma.org/explore/inside_out/2014/01/24/diving-in...

Since the heirs couldn't sell it and it was forced to be on display in a museum, seems like it made very little difference, while allaying the IRS's theoretical concerns about it potentially being sold on the black market, I guess...

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In all fairness the article details that the original owner was able to own the piece in the first instance on very shaky grounds, getting a nod from the right people in the Fish and Wildlife service:

"Even then, the government revisited the issue in 1998. Rauschenberg himself had to send a notarized statement attesting that the eagle had been killed and stuffed by one of Teddy Roosevelt’s Rough Riders long before the 1940 law went into effect. Mrs. Sonnabend was then able to retain ownership as long as the work continued to be exhibited at a public museum. The piece is on a long-term loan to the Metropolitan Museum of Art in New York, which Mr. Lerner said insures it, but the policy details are confidential."

I appreciate the intent behind the law, but this is one of those situations where a sensible argument could be made that a stuffed bird from before the law was put into place is hurting no one.

  the original owner was able to
  own the piece in the first
  instance on very shaky grounds

The Migratory Bird Treaty Act [1] and Bald and Golden Eagle Protection Act [2] both allow permits, issued by the Fish and Wildlife Service, for possession of the protected birds.

This is used, for example, to allow museum exhibitions and Native American religious ceremonies. There's even a special form [3] to apply for the permit!

So long as the eagle is in a museum that meets the requirements of the eagle exhibition permit, the ground seems pretty firm to me!

[1] https://en.wikipedia.org/wiki/Migratory_Bird_Treaty_Act_of_1... [2] https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protecti... [3] https://www.fws.gov/pacific/eagle/permit_types/exhibition_de...

On the other hand a lot of “old” ivory is sold which is actually from recent butcher.

The issue is that any loophole can and will be exploited by folks with a lot of money and an amazing amount of lawyers.

One bad apple ruins the whole bunch.

Sounds like the IRS was trying to encourage/strongarm the owners to charitably contribute the piece to a museum by offering them a fat deduction. Yay. (Probably would have better to have this unsalable art owned by the American people in the Smithsonian or somewhere, but good enough.)

> by offering them a fat deduction

A deduction from a number that they "invented". If appraisers (and basically the market) say the value is 0 but the IRS says it's $65 million who is right?

What if you have a regular piece of art that's appraised at say $1 million but the IRS says it's $1 billion? It appears the IRS's evaluation always stands. If so it's a perfect method to strong-arm at will.

> Last fall, the agency sent the family an unsigned draft report that it was valuing “Canyon” at $15 million. After Mr. Lerner replied that the children were refusing to pay, the I.R.S. then sent a formal Notice of Deficiency in October saying it had increased the valuation to $65 million.

And the strong-arming.

I say let the IRS put any value they want on it, but then give the owner an option to sell it to the IRS at that price that the IRS can’t refuse.

Heck, even at a 10% discount. e.g. the IRS claims this is worth $65 million so there is an explicit offer to buy at $58.5 million and the IRS can make a bundle on the taxes and then on selling it for its "real" value.

If I take that to its logical conclusion: do you believe the IRS should be expected to have the funds to purchase every conceivable asset at market price?

That is a stretch, but let’s say there’s a 20% discount to account for transactional costs and risk loading.

If someone is willing to take a 20% loss on “market value”, that market is not market value.

I don't think you see my point. IRS cannot be compelled to pay 80% price on every conceivable asset.

It's like telling any appraiser... Yeah you think it's worth that much? Prove it! Buy the sucker! If you did that multiple times they would go bankrupt, because sure they may be able to resell the thing if priced correctly but they need to pay for it in the first place. And to do it at the scale of IRS ... It's not a reasonable request or expectation.

But isn't it only a problem when there is a significant discrepancy between the market value and the IRS appraisal? Obviously the IRS doesn't have the funds to buy the entire market, but if people own something that's actually market value why would they sell it at a significant discount?

Also you're taking a gamble by challenging the IRS to buy something at a discount that they won't actually call your bluff and you lose out on money. And if you're actually standing by your personal assessment over theirs, you either make money or you get to skip the tax bill.

This seems like a much better balance than what we currently have.

As long as the IRS was given a sufficient window to pay for the item it would still work. There is no reason for them to have to pay up front.

If they can't sell the asset and then return 80% of it's market value to the original owner over the course of a year, than they were probably wrong about the market value.

Of course there are certain items that may take longer than a year to find the right buyer, mega yachts, specialized works of art, but if these things take years to sell and find the right buyer than their potential market value should be reduced to reflect that.

That would lead to unscrupulous people at the IRS valuing their friends junk as worth millions for a kickback.

Oh no, those poor millionaires.

Probably billionaires. The art collection the inherited alone was worth 1B. I can’t imagine the personal worth that comes with it.

https://en.m.wikipedia.org/wiki/Ileana_Sonnabend

In this case, the art seems to be nearly the entire estate.

People fear the day the authorities proclaim their property to be 10x the value from yesterday.

If someone is in a situation where their property's valuation cannot be evaluated by the sale of similar objects on the market, then they are without exception able to afford to pay the taxes on it. The story discussed here applies only to the extremely wealthy, and such people don't deserve any pity for having to contribute back to the society that allowed them to accumulate such wealth.

>The story discussed here applies only to the extremely wealthy, and such people don't deserve any pity for having to contribute back to the society that allowed them to accumulate such wealth.

Nobody here is crying for rich people having to pay taxes on assets with a value that can actually be realized - this is a question of fairness and logical consistency. At exactly what level of wealth are you arguing that the government should be able to make logically inconsistent determinations about how much you owe them?

>If someone is in a situation where their property's valuation cannot be evaluated by the sale of similar objects on the market, then they are without exception able to afford to pay the taxes on it.

If anything this article proves that the exact opposite is possible. If I owned "Canyon" - which I can't sell - and my remaining assets are valued lower than the tax on "Canyon" based on the initial IRS assessment, then I couldn't afford to pay the taxes on it.

What if I make my own (admittedly very crappy) art? I probably wouldn't be able to get $1 for it because it would be so bad, and it's totally unique so by definition it can't be valued by the sale of similar objects on the market (any art is just like this). So should I be forced to pay millions of dollars in taxes on it?

Don't be absurd. The object in question is not value-less, it is illegal to sell. It's an awkward corner case, not something to get upset about.

Your assumption is that the IRS's right to override appraisers comes with a fine print that says "applicable only in an awkward corner case" (in this case "items that cannot be legally sold"). I'm pretty sure if they're indeed allowed to do this and the conditions are defined as narrowly as possible (still to be decided in court I guess) then it can be easily abused. And the article doesn't suggest that such an exception exists.

And that's not even discussing yet the process through which an appraisal gets bumped up by over 300% between 2 steps that were both considered to be solid enough to actually be sent out.

Please use some common sense here. If you couldn't even sell it for a $1, then how are you expecting it to be valued at more than $1?

The IRS valuation of art and other collectibles is based on polling independent third-parties the likely fair-market value of the art/collectible at issue. If the situation proceeds to court, then they develop a formal appraisal (or occasionally hire an independent third-party appraisal, depending on the item being examined).

What happens when it doesn't involve a [mb]illionaire but regular people?

How do you imagine a non-[mb]illionaire would find themself in this situation?

In the situation of dealing with the IRS for any kind of inheritance they have to pay taxes for? Or actually anything they own if it turns out the IRS can simply have it's own estimation of value and taxes based on that?

If the IRS can just blurt out their own evaluation overriding any independent appraiser, even bump it up 300+% between draft and final evaluation, and tax you based on it then yes I do see quite a few people in this situation.

I'll try to assume the best interpretation of what you wanted to say and guess that maybe you didn't think that if the IRS can do this for a $1bn inheritance (than can or cannot be sold) they can also do it for a $100 inheritance. It's the principle of them being allowed to make the authoritative appraisal (not their job) that's the issue here, not that they collect taxes (their job).

People fear the day the authorities proclaim their [inherited art collection] to be 10x the value from yesterday...

Fixed that for you. This situation is literally not applicable to 99.999% of the US population.

But if you assume that the IRS did this "by the book" then for your statement to be true the rules governing the process must state "only applicable to art collections". This is a bit of a stretch don't you think? If such a rule that gives the IRS the right to override an appraisal exists then it would extend to anything. Even if you only consider such corner cases eventually you'd find situations where you don't have to be a billionaire to be affected.

And there's no reason to believe the IRS can do this only when talking about art that can't be sold.

I'm a tax lawyer, dude, I deal with the IRS on a regular basis and have successfully managed an IRS challenge to a client's (sports memorabilia) collective appraisal.

The IRS does not have the right to override an appraisal.

What happened was this: taxpayer valued art at $0 without any supporting evidence. IRS special panel for appraising art (comprised of professional appraisers and art museum curators) valued art at $X million without knowing that it was illegal for taxpayer to own said art (because the law allows museums to own such items). Taxpayer challenged, saying they couldn't actually sell art for any amount, and the IRS agreed and waived the assessment in exchange for the taxpayer relinquishing ownership of illegal item to a museum.

The only reason the kids in this situation even "owned" the art was a special dispensation given to their ancestors--not them--allowing them to "own" the art (a stuffed eagle) while it was in the possession of a museum. The dispensation didn't actually give the ancestors the power to transfer ownership to their children and there was a legal question that it could even be inherited.

If they can do it to a billionaire think what they can do to you.

This is literally the type of situation that only handles to billionaires and the ultra-wealthy. Situations like these are handled by a dedicated unit of the IRS.

Unless you have an inherited art collection worth millions, this will never happen to you.

I think their point was more general than your interpretation of it. Allowing the government to impose conflicting laws and penalties is not good for anybody and saying it's fine here because they're rich reeks of envy and spite, not reason.

Where the government imposes conflicting laws and penalties, affected parties can go to court and the court decides which law prevails (and must be followed) and which law to create a common-law exception for. This is literally been the case for the entirety of American history...

In this case, it wasn't necessary because the children agreed to turn over the inherited stuffed eagle to a museum and the IRS agreed that it had no sales value in the hands of a non-museum.

If the IRS decided to seize all of your assets tomorrow without reasonable justification, you would probably win in court. That doesn't mean we should all be indifferent to whether or not they make the attempt. It's great that this went to court and resulted in a reasonable outcome, but how much time, effort and money had to go into reaching a reasonable conclusion?

Just because a safety net exists doesn't mean the IRS should be shoving people into it.

And if this happened to the Average software engineer (you for example) you will be able to take the federal government to court?

nah the will quickly extend the rule to people like us "precedent" you know

What makes you think they got to take the deduction?

If they had contacted the IRS first they could have either gotten it in writing as valued at $0 or made the charitable donation ahead of tax season, lowered their gains, and sold fewer art pieces to pay their tax bill.

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