Estate Liquidation of Fine Art Assets

Appraisal record indicating fair market value of assets held by the Kollsman estate, in the lawsuit Estate of Eva Franzen Kollsman v. Commissioner of Internal Revenue, illustrates the legacy of federal tax court liquidation of fine art for purposes of imposing tax liability. The sale of two 17th-century Old Master paintings contested during the federal tax court proceeding, also exhibits the potentially undervaluation of this special category of assets.  Expert analysis of the IRS’s testimony within the case, as well as opposition to the Plaintiff’s valuation of the two paintings sold at auction as “unpersuasive” and “unreliable,” by the defense, reveal a rather insightful series of facts about the taxable worth of fine art assets.

A Fair Market Value Appraisal?

Review of the facts in Kollsman, reveals the two paintings in question, Village Kermesse, Dance Around the Maypole (“Maypole”) by Pieter Brueghel the Younger, and Orpheus Charming the Animals (“Orpheus”) by Jan Brueghel the Elder or the Younger were, according to the IRS, worth more than the estate claimed. “Maypole,” later sold for a $2,100,000 hammer price by Sotheby’s New York, Auction Lot. 43 in 2009.

Following the death of Eva Franzen September 2005, the Vice President of Sotheby’s North America and South America, George Wachter appraised the value of the two paintings from the Kollsman estate at $500,000 for Maypole and $100,000 for Orpheus, respectively. In his testimony before the IRS tax court, some damage caused from the decedent’s smoking habit was cited as reason for the lower than fair market value assigned the paintings in 2005 income tax reporting by the estate.

In Kollsman, the filing of a Notice of Deficiency identifying fair market valuation of Maypole and Orpheus for tax purposes, estimated those works to be worth approximately $1,750,000 and $300,000. When the estate petitioned the U.S. Tax Court with a request for redetermination, the IRS responded with revaluation of the two paintings at $2,100,000 and $500,000. In 2017, the Tax Court ruled the Eva Franzen Kollsman estate’s worth to be $2.4 million undervalued on the tax return.

Tax Treatment of Liquidated Assets

There is variance between IRS federal tax rate guidelines for antique, fine art, and rare collectible assets. Example is New York’s former estate tax treatment of tangible assets of worth, at a rate of 5 percent to 15 percent, compared with the federal estate tax rate of 40 percent. New York once treated the entire value that exceeds exemption tiers, rather than the amount over the allowable worth. The state’s rules guiding estate tax treatment of special assets, have since been raised to match the federal exemption rate.

A notice of deficiency by the IRS is the first step in legal due process of suing a taxpayer in court. State laws guiding contingent or unliquidated claims related to the retention of assets for estate taxes sometimes offer an alternative to liquidation. Find out about estate taxation in your state before the sale of fine art or other high net worth assets. Seek advisory from an estate planner or licensed attorney at law about liquidation taxation proceedings. Planned giving specialists involved in the nonprofit charitable giving strategies of estate contributors, can find out more about tax treatment of special assets from the IRS or state tax boards.

The appraisal of antiques, fine art, and rare collectibles for probate court record, estimates the proceeds from asset liquidation required to pay the outstanding tax liability of an estate.

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