Fifth Circuit Rules on Art Estate Taxes
The Fifth Circuit Court of Appeals recently agreed that shared ownership of a multimillion dollar blue chip art collection entitled a Texas family to a substantial tax break when it came to settling an estate.
Over the course of nearly three decades, Houston-based James Elkins and his wife Margaret collected 64 works by artists including Pablo Picasso and Paul Cezanne. Prior to their deaths, they arranged a grantor-retained income trust (GRIT) by which partial ownership of the art passed to each of their three children. The Elkins family reasoned that the restricted ownership impacted the value of the works and that the estate taxes owed on them should reflect a discount of 44 percent in determining their fair market value. The IRS however, disagreed, and the family was hit with a tax bill stating they owed more than $14 million plus interest.
The ruling, handed down September 15th, sided with the family. The judge ruled, “deficiency resulted solely from the IRS Commissioner’s disallowance of the ‘fractional ownership discount.’” The court ruled for more extensive discount that ranged from 52 to 80 percent, depending on the work in question and based on the testimony of the estate’s experts.
See Eileen Kinsella, Court Ruling on Art Estate Taxes Could Save You Millions, Art Net, Sept. 30, 2014.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.