As some of you know who have read my bio, I started my career with the IRS, so for me the compelling interest was two- fold; a wealthy estate vs. the power of the Internal Revenue Service.
The case basically revolved around 64 pieces of art work acquired by Mr. and Mrs. Elkins (Texas) during their lifetime and the valuation of the 'fractional interests' in the artworks (fractional 'shares' of the artworks being given to their children.) The New York Times called the case “A Potential Game Changer for Fractional Art Interest” (Oct.3, 2014).
Many of us have heard of individuals who purchase a “fractional share” of an expensive race horse (albeit perhaps not the horse itself, but rather in its winnings/stud capabilities). Fewer of us have in- depth knowledge of ‘fractional interests in works of art”. But as the case evolved, the art world (and estate planners; financial advisors; wealth managers; art dealers; art valuators) sat up and took notice.
The case began in 2006, upon the death of Mr. Elkins, and the estate had been battling in the courts ever since. For an excellent overview of the case and its outcome you can read in its entirety the New York Times article www.nytimes.com of Oct. 3, 2014. For a more in depth review and an excellent synopsis of the case including general principles of law; burden of proof and expert opinions/testimony you can read additional details at http://baylor.giftlegacy.com
Two salient points of the case are that the I.R.S. gives a “discount” on a tax bill (for art)– (a) recognizing that a partial share (of a work of art) would be hard to sell (therefore is of less value) to a (hypothetical) buyer who is not a family member and (b) the (hypothetical) purchaser of a partial share (of art) has little control over future transaction in a “fractional ownership situation”. Further, one IRS expert noted “there is no established marketplace for sale of a partial interest in a work of art.”
The Elkins estate was awarded a refund of $14 million plus interest (of taxes) – which is a hefty discount indeed! Apparently it is just as important to know “how” to own art as it is to decide “what” art to own.
Valuing art ‘shares’ is…well, it is an ART…not a science!
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