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...
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!
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.)
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.
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?
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.
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?
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).
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).
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.
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.
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.
COST model popularized by Glen Weyl and Eric Posner would be perfect tax for these kind of assets. COST is a form of Harberger Tax that ensures that the t property is more productively utilized by the society.
This is how COST works:
1. The owner can determine what the value of the asset is. They can over or underestimate the value as much as they want.
2. The owner pays some percentage of that valuation as tax. If they value the asset very low, they pay very little taxes.
3. The catch. Anyone can buy the property at any time at the owner determined valuation. If you don't want anyone to buy your assets, you must value it more than other people and and pay taxes for the value.
EDIT:
It seems that many people think that COST type private property tax would extend to personal property or could be applied without modification to housing for poor people etc. Personal possessions are not taxed in any place of the world and tax deduction make sure that small personal properties can be owned without paying tax.
> It seems that many people think that COST type private property tax would extend to personal property
You just literally recommended it for an item of tangible personal property, so from your recommendation that's not an extension at all.
> Personal possessions are not taxed in any place of the world
Yes, ad valorem property taxes on items of personal property do exist in some jurisdictions in the world, including many in the United States. (E.g., California's Vehicle License Fee is an ad valorem tax on automobiles which are items of tangible personal property.)
> and tax deduction make sure that small personal properties can be owned without paying tax.
That doesn't make sense with the preceding claim: of personal property wasn't taxed, you wouldn't need any kind of deduction to allow owning it without paying tax. Also, deductions which allow this aren't in place where they would be needed (i.e., where certain items of personal property are taxed) to allow ownership without taxation.
>You just literally recommended it for an item of tangible personal property,
Yes. We all write somewhat inaccurately and carelessly in discussion groups. Instead of nitpicking each other, we should try to read each other favorably.
What I mean is that there is classes of tangibles from pots and pans that one commentators was worried about into paintings worth of millions. It's concealable that at some valuations artifacts worth of millions are considered different asset classes.
It seems to me that if you want to recommend this to be applied to some particular subset of tangible real property rather than the whole class, than rather than mocking the idea that your recommendation would extend to the existing category as a whole, you ought to actually define the subset to which you would propose applying it so that your actual proposal can be evaluated.
Say I bought a computer, which I use to do my work on. Then I have a dry spell with little work so I get poor and can't afford to buy a new computer. But it's ok cause I use the one I got. I still valuate the computer at or above market rates, because I need it.
But what's preventing someone with more money than me from threatening to buy it from me unless I do X for them, or just to be a jerk? Without the computer I lose my ability to do my job, further driving me into poverty.
Am I missing something here?
edit: basically what I wonder is, what prevents this scheme from getting weaponized, and how does it deal with wealth asymmetry?
Point taken. However that still leaves the possibility that I no longer am able to pay taxes according to current market rates.
edit: Basically it assumes the object is available on the market, and it's available for the price I can afford to valuate it at. How does one prevent this tax scheme from being weaponized when one of those two assumptions are not valid?
In addition to the problems everyone else is pointing out, this also fails to account for labor, transaction costs and the variability of value based on relative ownership.
Suppose I'm a wildlife photographer and I have a camera that unarguably has a market value of no more than $300 (it's what the manufacturer still sells it for). But I've positioned it deep in the Alaskan wilderness at the cost of 50 hours of labor and $15,000 in travel costs. Someone who wants to troll me demands to buy it for $300, requiring payment of those same costs again to retrieve it, and then does the same thing twelve more times, one month apart, for my twelve other cameras.
Or I have a diamond as part of a laser. The diamond costs $100 but then it costs $10,000 to calibrate the laser, so someone who takes the diamond requires me to buy another for $100 and then pay another $10,000 to calibrate the laser again.
Or you have a custom component which can't be manufactured in less than ten years, because it requires a slow chemical reaction, but is a small yet blocking component of a large million dollar operation. Notwithstanding that, it's cheap to make it, because you just start the reaction and come back in ten years. But now someone who wants to shut down your operation just buys that component from you (along with your five spares) for the $10 market value and your million dollar operation is shut down for ten years.
For that matter, it can be used to monopolize the market for various commodities by offering the current market price for everything at once and then turning around to resell them for the monopoly price.
Or members of your family own shares that total 60% ownership in a company, and I own the other 40%. You personally own 12%, which I demand to buy for the market price, even though I should be paying the higher price for a controlling interest.
Or you've got a shelf full of equipment you use for your business operations, which your company manufactured itself and could quickly and inexpensively make more, but having access to any one of them would disclose millions of dollars worth of trade secrets to your competitors.
Market value is a fiction that only really applies to high volume commodities.
Sounds like a great idea. I have a noisy neighbor - this would allow me to finally get rid of him.
Also, there is an old lady living in one apt since WW2, but she's short on cash. I guess I could grab her place too. She took a good care of it over the years, but made a mistake of not investing in crypto, so I can easily outbid her now.
That reminds me of the rules of Swedish folkrace (a sort of amateur rally). You can put as much value as you want into your car, but after the races anyone can buy it off you for 8000 SEK. That way the bar of entry is kept low and the odds are evened out.
This is essentially how horse racing works as well in the US. The majority of races are "claiming" races, which means that horses are entered into a race at a given price. $5000, $10000, $50000, whatever. Before the race is run, anybody can put in a claim to buy the horse at that price after the race is run.
It's essentially how horses are kept racing against the appropriate competition. Enter your horse too low, in an attempt to win the purse, and it will get claimed. Enter your horse too high and it will not have a realistic chance of winning.
Not just anyone, but everyone can file a claim to the car. In case several claims are made for the same car, the claimant that gets to purchase the car is picked at random.
Not every game or sport has to devolve to angling for loopholes. Sure, get a friend to buy it, never be invited to compete again. Congratulations, you cheated to win a race almost nobody knows or cares about (if people did care so much about winning this race, they wouldn't think twice about "losing" a million bucks by openly over-spending).
i think that can open up some issues with people's assets that also have sentimental value.
I think instead of "anyone", it should be just the govt. If your appraisal seems too low, then the gov't reserves the right to purchase the asset instead of charging you the owed tax.
Not just things with sentimental value but just anything you're still using as well. It sounds like you'd be living in fear any time you invited someone over that they'd start saying they'll buy your frying pan and your second couch or something. And you'd have to let them buy it.
Then you have to go to the shops and buy new stuff... or just go over to their house the next day and buy it all back at the same price. Maybe see if they've got any other good stuff that isn't worth much while you're there.
Or you could just buy it back immediately when they buy it from you, stuck in an infinite While loop of ownership.
Why would they want to buy your frying pan? Is the value you've given it very low, making it cheaper to buy yours than another one? Is there a shortage of frying pans, increasing the value of yours?
People are often angry with each other and eager to hurt each other in any legal way available. (Ask your friendly neighborhood divorce lawyer for their stories.) This sort "anyone can take your stuff if they're irrational enough" would be very easy to exploit to make someone's life miserable. And the problem only gets worse if you imagine a normal person making a very rich person angry.
I wouldn’t even trust the government with this ability. Also what will the government do with these assets? Hoard them forever? Or eventually sell them back into the market. I can imagine govt employees receiving kick backs for seizing assets this way and selling them to their friend.
> Also what will the government do with these assets? Hoard them forever? Or eventually sell them back into the market. I can imagine govt employees receiving kick backs for seizing assets this way and selling them to their friend.
Presumably the government would auction them (as is done with seized proceeds of crime etc.). So there is no way to hand them off to a friend for a below-market price, and no way to profitably kickback.
Auctions are already used today as a way for government and unethical entities to steal from the public. This is an epidemic in civil forfeiture for alleged crimes, and in property tax seizures for cash poor-homeowners.
Is there a reason why sentimental value should not be taxed?
I mean, you would not extend the taxation to personal holdings with little value or moderate value (automatic tax deduction of $2,000 per person from COST would probably be enough) but if someone wants to keep something very valuable for sentimental reasons, why the feeling should not have a value put on it?
The question can easily be turned around: why should sentimental value be taxed?
It seems to me that protecting the things that are important to someone is a core purpose of society. Forcing someone to choose between the security of the things that are important to them and their financial wellbeing would undermine that.
The justifications for a high tax rate don't seem to apply to inheritance of items that have high sentimental value but low utility. Since the property does not have great utility, taxing it does not moderate income inequality due to inheriting capital. Both the idea of a higher tax rate on people who have more and the idea that it is justified to tax things higher that people didn't earn seem like an odd match for property that is high in sentimental value.
The tax burden is supposed to fall on those who are most able to bear it. Funding our society necessarily means inflicting a certain amount of misery on the citizens; the tax rates are supposed to share that misery out in a more-or-less equitable way.
Someone who has a lot of valuable things is better off than someone who doesn't, and so we demand a greater share of tax from them. It seems to me that that logic goes through exactly the same whether that value is nominal or sentimental.
As I said, there is no reason to extend tax to personal property. If poor people owns something valuable, they stop being poor when wealthy people take it.
The distinction between personal property or personal possessions and private property is important to make and the line must be drawn.
> If poor people owns something valuable, they stop being poor when wealthy people take it.
if you owned some land which could've been mined/fracked upon, then it might make economic sense for said company to purchase your land. You'd have to either pay an above average tax rate to justify holding on to the land, or be forced to sell it.
On the one hand, it does make economic utilitarian sense. On the other hand, it prevents people from being able to control their own property. Esp. if they have no funds to fight or defend themselves.
“If poor people owns something valuable, they stop being poor when wealthy people take it”
Only if you accept the money given makes up for the loss. Money does not make someone rich. It may put bread on the table but that poor person is still poor because they lost what was important to them.
Also the rich don’t get rich by paying more than they have to, which may not be what the property is worth to the original owner.
The amount they would have to value it at so they could afford the tax if they have to pay it may too low to turn them into a wealthy person if a wealthy person chooses to buy it.
Sentimental value is value and is factored in when declaring value; you are taxing the value to the owner.
> I think instead of "anyone", it should be just the govt. If your appraisal seems too low, then the gov't reserves the right to purchase the asset instead of charging you the owed tax.
For intellectual property (only), I've suggested in the past a version of this where anyone can buy it at the declared value, but it can only be bought into the public domain, which is sort of a hybrid of the anybody can buy and only the government can buy ideas.
In the more general case, an alternative is “anyone can offer to buy with a bid at or above the declared value, but unless it is the government exercising eminent domain you can refuse by increasing the declared value above the bid, posting back taxes as if the declared value for the current tax year were the new value, and for prior years as if the value had increased on some legally defined schedule over a set window of years (say, 5) or since you acquired the item, whichever is shorter, including a time-based penalty for all the ubderpayments.”
So this database of everyone's valuables and how much they're appraised at - is it publicly available? I can't avoid getting bids by keeping it secret what I own? Do potential buyers have the right to inspect the thing they'd be buying?
I'm not sure where you're getting your definition of personal property from, but for tax and legal purposes generally all tangible goods that aren't permanently fixed in place are considered "personal property." So basically everything physical except for buildings and fixtures.
So as described in your comment, COST would apply to personal property.
Also, personal property owned by a business is taxed in California (under the business property tax) and generally in some European countries, some South American countries, and India.
That doesn't include the countries that impose wealth taxes, which includes items that would be considered personal property.
Say my name is John Smith and I inherit a Ferrari whose auction value is well established at $1 million. The first thing I do is claim the Ferrari for $800,000, taking it $200k under market. Immediately after that, I have John Smith engraved on some of the car components. Now, the car is in fact worth less than when I inherited it, because no one would be willing to pay as much for a John Smith engraved Ferrari. Maybe I didn't plan to sell it anyway, but it seems like I'm dodging the the taxes on the $200k difference here.
There have been some clever plays in this market. For example, the dealer swap - two dealers agree to bid up each other's pieces at auction. The final sale prices are inexplicably very close, so they swap the pieces without moving much money around.
The market as a whole sees a much higher price - so they've made a few (tens of) millions on the assessed value of the pieces and also (probably) raised the value of future auctions of work by the same artist.
This is the same kind of logic that taxes private company stock gains on vesting even if the stock isn't sellable, if the "official" value at vest exceeds the grant value.
Whether you can sell something to cover the taxes just doesn't seem relevant to the IRS!
This is what boggles my mind - what is the "value" of something if not the amount of money you can sell it for? If you can't sell something and it doesn't generate you any revenue then its value is zero.
They couldn't sell it currently, if the law changes in the future (or if it can be moved to another jurisdiction) then it could be sold for a non-zero value.
You do, it's factoring the fact that something that cannot be sold legally can still has black market value, which is definitely the case for stolen art and antiques, protected species etc...
> This is the same kind of logic that taxes private company stock gains on vesting even if the stock isn't sellable, if the "official" value at vest exceeds the grant value.
I'm not a financial specialist, but googling[0] suggests that you can, say, use restricted stock as collateral for loans, at least under some circumstances, so the situation is slightly more subtle than having (currently) worthless pieces of paper that you have to pay tax on; not that I'm saying that the IRS is necessarily right.
Surely brokering such sales (to accredited investors) is a profitable opportunity, so someone should be doing that. Charging a few % sounds like a reasonable fee for brokering rather illiquid securities. Not just in silicon valley which mints huge quantities of fresh private equity.
At least large VCs should see it as an opportunity to increase holdings at a discount as employees inevitably rotate in the company.
I think something similar could happen with stockpiled rhino horns, but I daresay that African countries (apart from corruption problems) are somewhat more pragmatic than the IRS.
It's a contentious issue to say the least, and differs from the illegal ivory trade in one important way: ivory is a tooth, but a rhino horn is keratin and can grow back. Dehorning rhinos are a common practice to discourage poaching.
Disclaimer: My parents own a lot of art which I would like to keep when they pass.
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.
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?
If you can use the stock in any way, including as a collateral, you have had a taxable gain...
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.
No sane person would lend money on an illiquid stock with no value what if the company went bust "sorry mate" tanks for the 100,000 loan hers some worthless paper in return.
Generally for illiquid stock banks require significant overleverage, but it is something they do quite regularly, especially for startups with perceived future value.
> 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.
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 appraisers were a panel of museum curators that exists to appraise items like this.
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.)
I was meaning monetary value specifically to the person inheriting it. That is, if they have no intention to sell it and its not something that generates money for them on its own (e.g. a factory or machine).
So if this piece were the only thing you inherited and you were broke, you would owe the Irs $29M and have no way to pay it. Your heirs will repeat this exercise unless you donate it - and still owe the taxes.
In such case the right thing to do would be to default on the IRS debt and let the IRS reposes the artwork. Then report a crime and watch the ensuing flames between US government departments.
It was a joke. Selling the artwork is a crime, and so should be repossession. Or at best the IRS would have some issues while liquidating the newly repossessed artwork.
The other departments is DOJ, or whoever enforces the prohibition on the sale of the artwork.
Interesting read, fair point that they are already breaking the possession part of the law but have received a special dispensation, they could apply and receive a dispensation for the sale as well.
"In this case, the beneficiaries, Nina Sundell and Antonio Homem, have paid $471 million in federal and state estate taxes related to Mrs. Sonnabend’s roughly $1 billion art collection, which included works by Modern masters from Jasper Johns to Andy Warhol. The children have already sold off a large part of it, approximately $600 million worth, to pay the taxes they owed, according to their lawyer, Ralph E. Lerner."
This is the worst part of the article to me. Forced to sell your inheritance to pay the taxes on it... Seems ridiculous.
> Forced to sell your inheritance to pay the taxes on it... Seems ridiculous.
I don't get it. Would it seem less ridiculous if we were talking about cash instead of art, and they were simply paying the taxes out of those funds? Or is it more of a "death tax bad" thing?
Seems like bad estate planning when the bulk of inheritance is illiquid rare assets, unless you think the tax itself is ridiculous which is a completely different topic.
One of the most fundamental tensions in human society is this:
1. For a society to be just, we should be able to use the fruits of our labor to provide for our own children.
2. For a society to be fair, no should have an unearned advantage over another by virtue of being born to rich parents.
Any society that picks one rule and discards the other leads to a hellhole. If you pick 1 you get game-of-thrones-style tyrannical dynasties who own all of the wealth and use the poor as their serfs. Pick 2 and you get a pseudo-socialist dystopia where children are separated from their parents and raised in government-funded creches.
You can look at the inheritance tax rate as essentially the point the government picks on the continuum between those two extremes. Given the many many loopholes the wealthy have to avoid taxes on inheritance, I think the current rate is actually too low.
If you look at this from the perspective of the beneficiaries, sure, "losing" $600 million sucks. But they never earned it in the first place. It's not like the had to work hard to choose their family.
They still get something like half a billion dollars. That should be enough for them to scrape by. Meanwhile, think of all of the services that tax bill can provide for. College education for thousands of students. Healthcare for poor children. Environmental protection.
There's a very interesting economics paper discussing exactly this kind of issue and the market failures it causes [0]. My favorite quote:
"Dwarf tossing is an activity in which a large person throws a small person. The venue often is one in which alcohol is served. It is often a source of livelihood for the small person, with the large person paying for the privilege. While dwarf-tossing is legal in many places, it is sometimes banned by law."
I wonder if there is an opportunity for derivative financial instruments based on valuable things that can not be transferred.
Think company stock in a private company. It may not be possible to sell it due to bylaws or legal limitations, but it may be possible to borrow against it.
What if there was a market for loans based on valuable but non-transferable things?
It all hinges on the question of whether something will eventually be transferable. You can make an argument that the laws that limit the transfer of ownership could be changed in the future.
That sounds like a hillariously stupid loophole to get around selling in this case - something to use very passive aggressively about the strict liability eagle cult laws which are utterly irrelevant to conservation like stray feathers as felonies.
Take out a nominal very short term loan with the not-buyer backed by the collateral and never pay it back. Said item will transfer then.
It thankfully won't apply to current ivory or rhino horn bans given import bans but it would probably work to "jailbreak" from home owners associations from hell given the repossesor wouldn't be bound by a contract they never signed.
There is a difference between ownership and control. The ownership would not transfer in such a case, as it can not due to law. However, control would.
Just curious: could ownership of the art be gifted to a company, and then ownership of the company itself could be sold? Where specifically would this run afoul of the law? Curious to know.
Im guessing since the art would be on the company's balance sheet as an asset, a sale of the company would include the sale/ transfer if its assets, thus breaching the law saying the birds cannot be sold.
So does this mean that companies could possess toxic poison pill assets that make it illegal for anyone to buy the company? That seems wrong. Maybe a nice way to prevent a hostile takeover?
Only if they could somehow gain access to things which are illegal to buy, without buying them. So even if this works, that would mean the only companies that could use that to prevent hostile takeovers are the ones where someone involved in the company happens to already own an unsellable thing by grandfather clause.
No, it could not be gifted to a company as that transfer of ownership would be legally invalid. The children only had ownership due to a special dispensation granted to their ancestors (not them) and the dispensation didn't include the right to transfer ownership to others.
Middle manager A at the IRS F-d up going all out trying to tax this piece of art.
Slightly higher middle manager B cared far less but because A forced his hand he can't say "well upon further consideration we value it at $0" because that would piss of middle manager C who wants to maintain the "image of the IRS" or something like that.
So they reach the "compromise" of "well if you donate it then you don't have to pay" which partially satisfies A, B and C yet is total BS considering that these people (whoever they may be, rich jerks have rights too) have been forced to give up possession of their property because some bureaucrat decided this was worth pursuing.
Typical office politics. You see this pattern all the damn time in big organizations.
They only had ownership of this illegal-to-own item because of a special dispensation granted to their ancestors that allowed ownership so long as it was in the possession of a museum (i.e., the only lawfully allowed owners of such items in the US).
The issue here was never possession--the children would never have been allowed to actually possess the eagle. The issue was ownership and how much value the eagle had as an owned item.
Insult or not, destroying it is irrelevant to any tax liability it might have triggered upon inheritance; it still came into their that way. If you inherited a Picasso, you'd still owe tax on it, whether you hung it, or tossed it in a fire.
A person owns things. When they die, the legal person ceases to exist. The things they owned are now owned by a new legal entity called "the estate." Inheriting something is the formal act of transferring ownership from the estate to the people who end up inheriting things.
If something is in the ownership of the estate and it gets destroyed, stolen, or lost, how will it be treated for tax purposes at the time of settling of the estate?
Ok, so what happens if the estate consists solely of a single piece of art? The art is worth zero, no one wants to buy it, but the heir would like to have it for sentimental reasons, but the IRS says it's worth $100M. The estate has no money to pay this tax bill. Now what happens? The IRS gets stuck with a piece of worthless art? Is there some warehouse somewhere with a bunch of old crap seized this way that the IRS can't get rid of?
I haven't seen any comments stating how ridiculous it is to tax a work of art. This is what gets me, not the 0 ~ $29 Million valuation. But that art is taxable. I better burn all of my artwork, every doodle is worth what; $100, $1000, in taxes? Insanity.
What do you mean? The inheritance itself is already a gift, it just happens to be a gift from a dead person who might or might not be related to the recipient.
I'm not just being poetic, they are actually connected in the tax code. Untaxed inheritance and untaxed gifts come from a similar lifetime limit, after which they are taxed.
Ok, so if the guy actually tries sell the piece on black market and gets caught, will IRS be prosecuted for aiding and abetting the crime? By issuing $29M tax bill they are basically encouraging him to do that.
My reading of this page shows that this only applies to really wealthy people. You had to have been paying over $160K in income taxes every year before you left, or have a net worth of over $2M. Of course, if your net worth is a whopping $100K plus some worthless artwork that the IRS says is worth $50M, you might have a problem...
of course if you get caught participating in a terrorist group while abroad, you may get your citizenship stripped for free. I think that I saw that suggestion on Reddit once
Note that this only for naturalized citizenship, and even then only for a limited time afterwards.
As I understand it, the prevailing precedent of the Supreme Court is that revoking citizenship is something that a person must willfully do with the intention of having their citizenship revoked. This wasn't always the case, as it used to be that Congress could declare revoking actions that applied even without intent. So it's possible that this could change, but it's been the case for over half a century and unlikely to change anytime soon.
I can think of quite a few ways for something to be worth nothing, or less than that - for instance, would you be willing to take ownership of, and responsibility for, a lovely stretch of a former canal in the Niagara Falls area? [0] And that's ignoring synthetics, as of course debt has negative value.
Does it? You are basically paid in advance, surely that should be getting taken into account.
Yes I suppose debt can have a negative value if the interest rate is too high, but if you borrow money at a low interest rate to start the next google, that debt doesn't seem to have negative value to me.
That is the loan not the debt. A loan is a combination of the real payment and debt which has utility. Without the real payment only the negative debt remains.
Yes, but they go together as a package, you can't separate it out, you have got something in return for that debt. Most (all?) assets have liabilities attached, that gold bar has warehousing and insurance costs, that diamond mine has employees that want paying. It isn't reasonable to argue that they have negative value, because you're ignoring the positive value that comes with it.
The part that isn't apparent in this 7-year-old article was that the appraisal board, comprised of museum curators and professional appraisers, was not informed that US law makes it illegal to actually own stuffed eagles, unless you're a museum.
So they evaluated it as a work of art, and as museum curators they weren't aware that it wasn't legal for the owners to actually own or sell the eagle. Hence, the large valuation for the unsaleable item.
HN has an unhealthy slant towards giving more consideration toward rich people's problems, such as this.
Also, per the guidelines, an HN submission should be something that "gratifies one's intellectual curiosity". An edge case in US taxation that could affect only those wealthy enough to have an art collection doesn't really fit that definition.
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...