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Saturday, February 26, 2011

Why it is a dumb idea to overvalue donated art on your IRS tax return.

About 15 years ago I was leaving the offices of Arthur Ochs Sulzberger, Publisher of the New York Times, and had just started to load my van with the very few views of New York City that I had not been able to sell him.

It was always a thrill to visit with this elegant, thoughtful, gentle man. After being ushered into his magnificent offices by his fiercely loyal assistant, Nancy Finn, Mr. Sulzberger was always sure to buy at least 50% of what I had schlepped up to show him.

But before every presentation, he truly wanted to know about me and my family. Then he would give me a tour of his collection stopping in the office of his brilliant CIO, Elise Ross for a chat. The wonderful courtesies of life were part of his irresistible, attractive persona. He made everyone around him feel GREAT.

At the end of this particular visit my mood was high because this time he had bought almost everything that was presented. There were very few maps and city views to load.

It was then that my light packing was interrupted by a tall, forceful, strong man who had quickly walked up in back of me and loudly said, "Helloooooo young man. What are you doing? What do you have in there?"

My first reaction was to ignore this question from someone who looked decidedly old school in his rumpled, loose fitting suit and somewhat tousled appearance.

But then he said "Guess you have been up to see Punch. Are you the one that sells him all those prints."

Then it was clear that it was time for me to be polite and respond.

We hit it off - me telling him about my passion for the iconography of New York and my thanks for the opportunities that Mr. Sulzberger had given me and him asking questions that kept my mouth flapping.

Finally he said, "You know that Punch has always been especially kind to me as well - always giving me the chance to make my points and help the people of New York. And, do you know, he only asked me for one favor in 40 years.

As you know Punch was the Chairman of the Board of Trustees of the Metropolitan Museum of Art. They were desperate to get the collection of Walter Annenberg away from Philadelphia. Annenberg had said he would go with the Met if he could get the collection appraised and then deducted against his income at its full market value."

(At the time the IRS regulations were that art could only be deducted for cost to the owner. Annenberg's cost was a small fraction of its market value and his tax benefit would have been much less. This rule had been put in place because of massive abuses by promoters who had been giving huge amounts of Andy Warhol works away at vastly inflated values. The loss to the American tax payers 20 years ago was in the range of hundreds of millions. Congress was right to kill off the ability to deduct at full market value, but Museums suffered because people stopped giving art away almost entirely. Annenberg was a genius to figure out that dangling a carrot to the powerful Met Board might well bring about an actual change in the laws of the United States.)

He then continued to say, "So I used my influence to get the law changed so that art could be deducted for the full market value and the Met got Annenberg's great collection."

Wow. What a story!!!!!!!!!!!!!!!!!!!!

So typical of the beautiful, selfless heart of the man that I had been associated with and now told by a man of obvious power.

But who was it???? Ahhhhhhhhhhhhhhhh. So embarrassing. I just didnt know.

He could see me struggling and said "I am Daniel Moynihan and I am going up to see Punch now. Good luck young man."

Wow.

The lesson from this story is that there MAY not be another Daniel Patrick Moynihan to change the law at the request of a giant like Arthus Ochs Sulzberger. If Americans abuse the valuations of their gifts, Congress will be given no choice but to change the rule back to cost.

Arader Galleries stands ready to perform appraisals but they are going to be for FAIR MARKET VALUE only. That is what a willing buyer will pay a willing seller with both sides having full market information and neither side being in a position of being forced to make a quick decision.

This is a wonderful privilege for all Americans that does not exist anywhere else in the world. It is precious. If it is abused, Congress will do the right thing for the American people and put valuations for donated art back to cost.

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