At Friday’s outstanding Art Law Day presented by the Appraisers Association of America, among the highlights were talks by Ralph Lerner and Judith Bresler, co-authors of the indispensable Art Law (just published in its fourth edition). As part of a panel on Philanthropy and the Law, Lerner gave a notable update on one of the biggest art law stories of the year, the Sonnabend heirs’ battle with the IRS over Robert Rauschenberg’s collage Canyon.
As reported widely earlier this year, when modern art dealer Ileana Sonnabend died in 2007, among the works she left to her heirs was Canyon. Most distinctive among its several media, Canyon includes a stuffed bald eagle. Under the 1940 Bald and Golden Eagle Protection Act, and the 1918 Migratory Bird Treaty Act, the possession, sale, barter, transport, or import/export of any bald eagle, living or otherwise, is a crime.
As a result, when the Sonnabend heirs prepared their estate tax return, they valued Canyon at $0, on the theory that something which is a crime even to possess has no value (and reportedly backed by appraisals from Christie’s and others).
This brought the IRS’s Art Advisory Panel into the equation. The Art Advisory Panel “assists IRS by reviewing and evaluation property appraisals submitted by taxpayers in support of the fair market value claimed in works of art involved in Federal income, estate and gift tax cases in accordance with the Internal Revenue Code.” The Panel has in art and antiques. The Art Advisory Panel reportedly stated that Canyon in fact had a value of $15 million. When the Sonnabend heirs rejected that, the IRS sent a Notice of Deficiency—but now valuing the object at $65 million—arguing that simply being illegal does not necessarily mean there is no market for the object.
Although taxing contraband is not new, many observers noted that such a tax was usually levied on someone showing an intent to profit from it (e.g., smuggled goods). Here, the heirs took the collage without any choice, but all their options to dispose of it were foreclosed—short of which they were facing a tax bill for tens of millions of dollars.
The case promised to test the IRS’s novel approach, with widespread ramifications. At Friday’s Art Law Day, however, Lerner remarked that the case will settle within a few weeks. This is undoubtedly good news for the Sonnabend heirs, but it leaves an interesting question unanswered.
