Friday, February 13, 2015

Ralph Lerner helps save undue estate taxes through advising


Also Good For the General Public

Ralph Lerner, Art World Advisor
Ralph E. Lerner, art advisor, is an advocate for saving taxes for individual art collectors on their death.  Perhaps the most extreme example is Mr. Lerner’s victory on behalf of the Estate of Ileana Sonnabend.  Ms. Sonnabend died in 2007 and at the time of her death she owned the masterwork painting by Robert Rauschenberg entitled “Canyon”. The Internal Revenue Service valued “Canyon” at $65 million, yet Mr. Lerner was able to get the IRS to agree to reduce the value to zero for federal estate tax purposes. 

Ralph explained that the IRS estate tax regulations defines fair market value as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having a reasonable knowledge of relevant facts. The hypothetical sale must be in the market in which such property is most commonly sold to the public.

The valuation issue came about because “Canyon” contains the body of an American bald eagle – a species protected by two laws, the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Treaty Act.  Under these statutes it is a criminal offense to possess, sell, barter or otherwise deal in any manner with a protected Eagle, alive or dead. Therefore, if the taxpayer sold the Rauschenberg painting to raise the money to pay the estate tax on the $65 million IRS valuation, the executors of the estate would be committing a criminal act punishable by fine and imprisonment – not a good situation to be in. 

The IRS argued that there is a market for a masterwork like “Canyon” (be it an illicit market), in other words, the IRS was looking to the stolen market place where it alleged the painting might be sold.  The taxpayers argued that it was impossible to sell the painting given the legal restrictions on its sale.

At the urging and creativity of Ralph Lerner, a compromise was reached that benefited not only the Sonnabend estate, but the general public as well.   It was agreed “Canyon” would have a zero value for federal estate tax purposes and hence, the estate tax on the painting would be reduced to zero. The heirs of the estate agreed to donate the “Canyon” to the Museum of Modern Art in New York City but not claim any income tax deduction for the donation.  

The masterwork “Canyon” then went on display at MoMA and can be viewed by the general public for years to come. 

A result that Ralph has described as a “win win situtaton,  everyone benefits.”