The Priceless Rauschenberg

What's an art work worth if you can't sell it?

An unusual art valuation case has recently been resolved in the US tax courts. It began in 2007 when art dealer Ileana Sonnabend died, leaving her heirs with an art collection valued at US$876m and which included works by Jeff Koons, Andy Warhol and Robert Rauschenberg. The heirs duly sold many of the works in order to raise money to cover estate duties of over US$470m.

One of the works in Sonnabend's collection, however, was listed as having a fair market value of nothing at all. This was a well known work by Rauschenberg entitled 'Canyon', part painting and part sculpture, which was then hanging on loan in the Metropolitan Museum of Art. Why was a famous Rauschenberg worth nothing? Because it was unsaleable thanks to the stuffed bald eagle standing at the foot of the painting.

Robert Rauschenberg's 'Canyon', 1959

The US's Bald and Golden Eagle Protection Act (the Act), first enacted in 1940, provides that it is an offence for any person to 'knowingly, or with wanton disregard for the consequences of his act take, possess, sell, purchase, barter, offer to sell, purchase or barter, transport, export or import, at any time or in any manner, any bald eagle commonly known as the American eagle, or any golden eagle, alive or dead, or any part, nest, or egg thereof of the foregoing eagles . . .'. For a first offence, the penalty is up to US$10,000 and one year in prison. The Act meant that Sonnabend's heirs could not legally sell the work, nor export it for sale outside the USA.

The IRS however had other ideas. According to Forbes, it told the heirs that a market could exist for the work despite the Act - there might, for example, be a 'reclusive Chinese billionaire' willing to buy the work and hide it. The IRS valued Canyon at US$65m and sent a bill to Sonnabend's heirs requesting an additional US$29m in unpaid tax, plus a penalty of US$11.7m for mis-valuing Sonnabend's estate.

The heirs appealed the tax bill in court and at the end of 2012 the IRS decided to settle out of court, presumably feeling that their position over Canyon wasn't particularly tenable. No tax is payable under the settlement, and the Rauschenberg has been donated to the Museum of Modern Art . The case has left no guidelines as to whether the IRS would in another case be entitled to set a value on a legally unsaleable artwork, but in this instance common sense seems to have prevailed.