As I have previously discussed, the Fifth Circuit’s decision in Elkins v. Commissioner that reversed the Tax Court’s reduction of the discounted value of artwork to 10 percent compared to the estate of James Elkin’s assertions that a discount of at least 45 percent should be applied to Elkin’s fractional interest. The circuit court based its reasoning for allowing the high discounted amount proposed by the estate was that they presented expert evidence while the IRS did not present any evidence for the assertion that no discount should be allowed. Though this reasoning will likely limit the reliance by future taxpayers on the favorable outcome of the case, the case does bring up important issues including the complexity of art valuation for tax purposes. With the unlikelihood that the IRS will again not have their own valuation expert for future cases, it is important that taxpayers have strong evidence to back up valuations and discounts, and also consider in advance the various methods for estate planning for art collections, such as trusts and LLCs.
See William E. Keenen, Determining the IRS’s Fair Share: Considering Discounts to Establish the Value of Interests in Artwork for U.S. Transfer Tax Purposes, The National Law Review, Jan. 3, 2015.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
