A lot of people would say that you have paid more than your share of estate taxes if you wind up parting with $471 million or so. The case of the estate of the deceased art collector Ileana Sonnabend demonstrates that this amount may not be enough for the Internal Revenue Service.
It all revolved around a work of art, a sculptural combine called “Canyon” that is the creation of Robert Rauschenberg. This work would be very valuable on the open market if it wasn’t for the fact that it can never be sold.
This is because there is a stuffed bald eagle inserted into the work. Because of federal regulations protecting the species even a stuffed bald eagle cannot be sold.
As a result the art dealer’s children felt as though the estate tax should not be applicable to this work of art that is essentially worthless when it comes to bringing in any financial gains.
While this may make sense to many of us, the Internal Revenue Service valued the piece at $65 million and demanded $29.2 million in taxes along with some $11 million in penalties.
The heirs to the estate had already paid out approximately $471 million in estate taxes on both the federal and the estate levels without including this piece as part of the taxable estate.
Fortunately for Sonnabend’s children an agreement has been reached that has allowed them to donate the painting to the Museum of Modern Art in New York, and in return they won’t be required to pay the taxes and penalties.
The Augulis Law Firm is a member of the American Academy of Estate Planning Attorneys.