Rauschenberg’s Canyon Goes to MOMA: Nationalization Case Study

On November 28, The New York Times ran a story titled “MOMA Gets Treasure that Met Also Coveted,” which focused on the decision by Ileana Sonnabend’s heirs to donate an important artwork by Robert Rauschenberg Canyon to MOMA. Among other information, the article details the issue that made the family consider such a decision in the first place—the bitter dispute with the U.S. Internal Revenue Service (IRS), which had levied a significant inheritance tax to be paid on the artwork after it was inherited by Sonnabend’s children in 2007 ($29.2 million in estate tax and another $11.7 million in penalties).

This story was fascinating to Skate’s for several reasons. First, there is a real issue concerning the extent to which the IRS claims could be considered reasonable. Second, the nationalization case study created by this “donation” is interesting in its own right…

To read the full text with data, please click here.

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4 Responses to Rauschenberg’s Canyon Goes to MOMA: Nationalization Case Study

  1. Dation should become accepted by the Federal Government for estate taxes.
    Dation, or dation en paiement, is a civil law contractual concept . It is the act of giving something in satisfaction of a debt other than what the original terms of the debt requires. In this case, the original debt was the assessment of estate taxes and penalties but the IRS, which can only be paid in cash, but which is being “paid” (or being overpaid, if the IRS valuation is correct) by the transfer of “Canyon” from the Sonnabend heirs to MOMA. It differs from donation, which is a gift; here there is an exchange of value for the transfer. Is also different from making payments “in kind” for a debt (the common law concept of accord and satisfaction) because the transfer is to a third party who is not involved with the initial debt transaction; the tax assessment is between the heirs of the Sonnabend estate and the IRS, but the transfer is to MOMA which (unlike the Metropolitan Museum of Art) has had nothing to do with the artwork or the tax assessment prior to the transfer.
    Several states (most famously New Mexico in the Georgia O’Keefe Estate) have enacted laws allowing Dation as have several countries (most particularly France where the concept originates). These allow estates to pay off their estate taxes due by transferring ownership of artwork and other tangible property to the state, or an approved cultural institution, on a one for one basis according to the valuation of the assets. For example, if you have an estate tax due of $100,000 and a painting valued in the estate at $10,000, the transfer of the painting to the state (or approved cultural institution) satisfies the tax assessment. Since the transfer is in exchange for the satisfaction of an equal amount of taxes, there is no charitable deduction.
    The Sonnabend estate is quite different, however. First, there was no agreement on the value of the artwork: the estate valued it at zero; the IRS valued it at $65 Million. In my opinion, they are both wrong on the valuation but look at the Skate article for a longer discussion on valuation issues in this specific case. Second, there was no agreement that the debt was actually owed, that is if the Estate won its argument, the taxes and penalties due would be zero, and if the IRS won the estate tax and penalties due would be $40.2 Million. Additionally, there is not an equal exchange between the value of the artwork and the taxes due. Even if the IRS prevailed in its $65 Million valuation of “Canyon”, and $40.2 million in taxes and penalties was imposed, the transfer of the artwork is a transfer of $65 million worth of art for the satisfaction of $40.2 million in debt, or more than a third more than what is owed.
    All ways around, this settlement makes a very bad precedent for the settlement of artwork. The temptation will be, in my opinion, for the Government to impose as high a valuation as possible on the estates of individual taxpayers with the expectation that they can get a settlement that transfers the ownership of far more value of art to the state, or a cultural institution, without offering back either cash for the difference or a charitable deduction. This is coerced donations of the worst kind.

  2. An error, the value of the painting in the example should be $100,000, not $10,000.

  3. RealClearArts says:

    Very frustrating — I would like to read your post, but none of the links work. Please adjust! thanks.

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