When museum curators confuse price and value

By Felix Salmon
July 23, 2012
short piece in Forbes magazine, and a better, more detailed blog post, about one of the more bonkers tax fights out there: the one between the IRS, on the one hand, and the heirs of Ileana Sonnabend, on the other.

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Back in February, Janet Novack had a short piece in Forbes magazine, and a better, more detailed blog post, about one of the more bonkers tax fights out there: the one between the IRS, on the one hand, and the heirs of Ileana Sonnabend, on the other. Basically, Sonnabend owned a Robert Rauschenberg masterpiece, called Canyon, which cannot be sold — not even to a museum — because it includes a bald eagle. But the IRS wants her heirs to pay inheritance tax on it at a $65 million valuation, over and above the $471 million they’ve already paid in inheritance tax on other Sonnabend artworks they were bequeathed.

Novack couldn’t get a good explanation of where the $65 million number came from, although she did talk to the heirs’ lawyer, who said that the head of the IRS art panel, Joseph Bothwell, had said that even though it’s illegal for anybody to buy the work, “a recluse billionaire in China might want to buy it and hide it”. Which hypothetical Chinese billionaire was apparently enough for the IRS to ask for $29 million in taxes, plus a $12 million penalty for misstating the value of the work so grossly? Apparently what the estate should have done is mark the work not to where it can be sold legally (it can’t be sold legally), but rather to where it might conceivably be sold illegally, should there be Chinese billionaires interested in such things.

Today, the NYT’s Patricia Cohen picks up the story. She only really adds one thing, but it’s a very fascinating thing: she spoke to Stephanie Barron, who sits on the IRS’s Art Advisory Panel, and who was one of the group of people who jointly came up with the $65 million figure.

She said that the group evaluated “Canyon” solely on its artistic value, without reference to any accompanying restrictions or laws.

“The ruling about the eagle is not something the Art Advisory Panel considered,” Ms. Barron said, adding that the work’s value is defined by its artistic worth. “It’s a stunning work of art and we all just cringed at the idea of saying that this had zero value. It just didn’t make any sense.”

The assumptions baked in to this are both jaw-dropping and entirely unsurprising at the same time. Barron is the senior curator of 20th-century art at Lacma, which puts her at the pinnacle of the non-profit art world, the place where art is supposedly valued just for its own sake and not because it’s worth lots of money. And yet, faced with a literally priceless work of art, Barron and her fellow panelists “just cringed” at ratifying precisely that concept. If a work has great artistic value, in Barron’s view, it must have great financial value as well. And, conversely, if a work has no financial value, then it cannot have artistic value.

I’m sure that Barron would push back at the idea, expressed at one time by Tobias Meyer of Sotheby’s, that the most expensive art is the best art, and that there’s some kind of direct correlation between price and quality. But in a weak sense, she is clearly invested in the concept. While it’s common to find unlimited editions in museum design collections, they’re rarely found in museum art collections, precisely because they lack the artificial scarcity that confers financial value.

Over the course of the past 100 years or so, various artists, with varying degrees of success, have attempted to distance themselves from the art market and make work with no financial value. Rauschenberg himself, actually, was one of them: he was an early and important player in the world of performance art. But high financial valuations get attention, and museum curators are easily forced into a stance of worshiping those valuations, even if such a stance doesn’t at first come easily to them.

The way the art world works is that collectors collect art, and museums collect collectors: that’s how great museum collections are built up. Collectors are always rich, and while once upon a time that meant there was a lot of old money in the art-collecting world, those days are over now and the world’s biggest art collectors are nearly always new-money self-made men.

Now: suppose you’re a museum curator, and your job is to flatter some billionaire collector so that he will end up donating his collection to your institution. While you will surely talk about his great eye, and subtly disparage some hedge-fund whiz-kid without nearly the same degree of connoisseurship, there’s one thing you’ll never do, which is suggest that maybe there are much better collections out there which aren’t worth nearly as much money. For new-money art collectors, the art market is a constantly evolving judgment on what they have bought: if your art has gone up in value then that means you have a great eye and you’re very perspicacious; if your art has gone down in value, then that means you fell for some trendy fad, you fool. At its highest levels, art collecting is a highly competitive game — and mark-to-market valuations are the way that collectors keep track of who’s winning.

Ileana Sonnabend, who died with a billion-dollar art collection, surely ranks among the very best at playing that game. But at the same time she was the kind of person who would love Canyon, her Rauschenberg combine, all the more because it had zero financial value. And I’m quite sure that if she was on the Art Advisory Panel, and Canyon was owned by someone else, she would have taken great pleasure in assigning that work a value of $0.

For Stephanie Barron, a work’s financial value is defined by its artistic value. But for people like Robert Rauschenberg and Ileana Sonnabend, that was never the case. They both died wealthy, thanks to the art world. But I think they would have been genuinely horrified at Barron’s idea — the concept that if Canyon is worth nothing financially, then it must be worth nothing aesthetically. It’s a dangerous and invidious notion, and while it might fly with big-name LA collectors, it really has no place in any museum devoted to art rather than money.


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Is it necessary to get Congress involved? A very simple common-sense solution: have the work donated to the museum and declared exempt from the estate tax. I’m sure it is quite valuable (especially since it can’t be bought), but the whole situation is insane.

Posted by TFF | Report as abusive

Why is it illegal to sell it? I’m sure dealers in Europe would be happy to sell a picture with a bald eagle in, after all, it’s just another bird for heaven’s sake!

I have to say banning the sale of items with a picture of a bald eagle on is the silliest most ridiculous idea I’ve heard this year – and that includes April 1st!


Posted by FifthDecade | Report as abusive

FifthDecade misunderstands the nature of the work (which wasn’t all that clear in the article). It doesn’t have a picture of a bald eagle, it has a real, stuffed bald eagle. See for example
http://www.flickr.com/photos/generatorrr  /6886183464/

Posted by bobmich | Report as abusive

So, artistic value and financial value are NOT linked? I realize many people overpay for bad art, but the idea that great art has zero monetary value is just silly.

Having said that, there are interesting issues in this case. I invite all to read Robson v. Commissioner, Tax Court Memo 1997-176. Also, the tax code sections relating to estates and to charitable contributions. By law, IRS uses the same value for both estates and charitable contributions, although many like to think of the former as wholesale and the latter as full retail. The Robson case makes it clear that a market has to exist, not necessarily that one has to have legal access to that market. As everyone knows, there is a strong market for good quality contemporary art. Beyond that, I do think it would be useful for the Court to clarify the issue of access to a market, and just how hypothetical an appraisal is.

Posted by josephbothwell | Report as abusive

Barron is making the mistake because she has no grasp of “financial value” is; Meyer is making the mistake because he has no grasp of “artistic value”.

After 9/11 the federal government paid money to the families of many of the survivors based on a formula that was supposed to determine need; a woman whose husband had life insurance and therefore received nothing told the administrator of the fund (at a public meeting) that she felt insulted, as if she was being told that her husband’s life had no value; the administrator sat silent. He should have jumped out of his seat, and assured everyone, no matter how much they were receiving, that he didn’t believe that any amount of money would replace their loved ones, and that they should not imagine that it was possible to financially value their loved ones’ lives; the money was only based on what money could do.

While art isn’t human life, a similar confusion seems to be at play here. Money can do what money can do, and that is pretty well limited things that are connected to markets and transactions. A government price control wouldn’t change the artistic value of the artwork, even if it affected market prices. A government ban on sales doesn’t affect the artistic value of the artwork, but it very much does affect whether inheriting the artwork enhances the heirs ability to pay taxes — the effect is that it does not.

Posted by dWj | Report as abusive

Of course the work has monetary value, regardless of laws preventing the legal sale of the object. You don’t hear about drug busts where the police recover 500 pounds of cocaine with a street value of worthless. Let’s say that they did sell it, somehow, and $50 million dollars showed up in their assets. Does the IRS not get capital gains on that because they didn’t really sell it – after all it would be illegal to do so.

The black market is still a market where people can, and do, exchange goods and services for dollars. Just because the work can only be sold on the black market doesn’t make it have zero monetary value.

If this work has no monetary value, expect to see lots of endangered species added to “priceless” works of art in order to avoid the taxes (and if endangered species trafficking carries too long a prison sentence, I’m sure they will find something else that is illegal to sell, but carries only a nominal fine, to make the same argument).

Posted by njnnja | Report as abusive

“expect to see lots of endangered species added to ‘priceless’ works of art in order to avoid the taxes”
Of course that won’t happen because doing so would be hugely illegal, and would land the artist/heirs/whomever did that in jail.

Not to mention that what matters here is not just any any endangered species, but a bald eagle, which has a whole act (the 1940 Bald and Golden Eagle Protection Act) devoted to it.

And if you read the actual article, you’ll learn that Rauschenberg and Sonnabend had to go through all sort of hoops just to be allowed to possess and display ‘Canyon’.

So I doubt “stick a snail darter on it” will be a very promising strategy for future estate tax avoidance.

Posted by hubcapjr | Report as abusive

Thanks bobmich, I did think it was a painting. High value art clearly isn’t my thing! (I do however think the next bust we are going to see will be in this sector – there are definite signs of an asset bubble forming).

Posted by FifthDecade | Report as abusive

I think that a value of $0 is difficult to justify, but ignoring all restrictions on sale flies in the face of how the IRS values other assets. It’s well-established that in valuing stock, legal restrictions on transfer – such as a stockholders’ agreement that grants someone else purchase rights (e.g., some sort of right of first refusal to match any agreement to sell the shares to a 3rd-party) – are a basis for discounting the value of stock. The value can’t be discounted as low as $0, but the percent haircut can be significant. To take another example, would the IRS say that the zoning on a plot of land is irrelevant to value, because one could build illegally? In all of these cases, like with the eagle, the ultimate enforcement is the threat of criminal law – i.e., if I willfully ignore a civil court judgement related to stock transfers or zoning, the choice I’ll eventually face is to comply or have a judge throw me in jail for defying a court order.

I therefore don’t think that the value of this work should be $0 for estate tax purposes, but it should be a dramatic discount – my gut is an over 50% discount – to the “value without reference to any accompanying restrictions or laws” cited by Ms. Barron.

Posted by realist50 | Report as abusive

“There are people who know the PRICE of everything, but the VALUE of nothing”. (Oscar Wilde)

Posted by Neil_McGowan | Report as abusive