Famous painter’s family in dispute with IRS over tax audit
When an accomplished artist dies with hundreds of valuable paintings in his possession the federal death tax can be substantial. For a decedent’s estate in Nevada or elsewhere, the estate representative has a duty to obtain accurate but also realistic appraisals for purposes of determining the amount of tax due. Even an appraiser of high renown in the art world is not necessarily going to be believed, however, when the IRS decides to perform a tax audit.
That scenario played out in the estate of Jean-Michel Basquiat, a so-called neo-expressionist artist who started out as a graffiti painter and died at the early age of 27. His highest-selling painting went for nearly $50 million this past May. Recently, his two sisters took over a tax appeal regarding an alleged tax debt still owed by Basquiat’s estate.
Generally speaking, the IRS audits the return to see if the true market value of the asset was used as the tax basis. That’s why appraisal reports for any kind of assets of significance should be attached to the death tax returns. In this case, the tax returns included appraisals of his works by Sotheby’s in New York. Sotheby’s had handled the actual sale of some of his paintings and was well-versed in the true value of Basquiat paintings.
The father had paid the IRS death taxes of $8.5 million based on Sotheby’s appraisals. However, the IRS conducted a tax audit and decided that the valuations were too low. The agency billed the father another $7.3 million in federal estate taxes. Now that the father is deceased, Basquiat’s two sisters have taken up the tax appeal. The case may likely boil down to a battle of appraisers.
One issue that the family is asserting is that a reduction in value must be recognized when a large number of paintings flood the market after an artist’s death. That recognized appraising principle is generally applicable in Nevada as well as elsewhere. Furthermore, the appraisers will point to a myriad of different factors that are used to give a reasonable estimate of market value. The court will then make the final decision in a tax appeal such as this one.
Source: galleristny.com, Basquiat’s Family is Suing the IRS, Zoe Lescaze, Nov. 11, 2013
