Even outside of this specific situation where the art cannot be sold, it seems questionable to me to tax something that could likely have great personal value to someone but not great monetary or utility value to them.
It seems to me that a good solution would be to change the law so that property which is inherited is only taxed if it is sold within the first 10 years or something.
If you inherit stock, or land, or any other money making asset, it does not make sense to not tax it just because it was not sold.
I definitely think it would make sense to make an exception to a hypothetical "you aren't taxed until you sell it" rule for things that are either directly analogous to wealth (e.g. stocks) or that directly generate wealth (e.g. a factory or business).
I could also see land and housing being an exception, although I also don't like the idea of someone being forced to sell the family homestead. Do you know if they appraise the value of things like land based on its current use or potential use? For example, what if the value of the mineral rights for the family homestead was much greater than the residential value?
Taxable gain in pretty much all of the Western World results from "dispositions" of items, which includes non-sale transactions.
Also, the kind of stock we are describing was issued as compensation, and taxation was either reduced or deferred depending on the circumstances, so it is entirely appropriate to tax certain non-sales gains related to the stock.
If that's the case it is generating some sort of money.
Taxes like this exist to prevent the hoarding of wealth through generations
If it doesn't have great monetary value, the taxes won't amount to much. The only thing that makes this case interesting is that the IRS appraisers were completely off the mark, something that will (one hopes) be resolved in court. If they can get the IRS to agree with the the auction houses that the thing is basically worthless, they can keep the hideous thing in their living room forever without paying anything.
The IRS apparently did not tell them that the item to be appraised was in fact not saleable under other laws. (This article is from 2012, so the situation has been resolved for years.)