Tuesday 12 November 2013

Jean-Michel Basquiat's family sue the IRS

The late Jean-Michel Basquiat’s paintings don’t come cheap. But are they quite as expensive as the US Internal Revenue Service (IRS) thinks they are?

When the artist himself died at just 27 in 1988, his estate went in equal parts to his parents. Twenty years later when Basquiat’s mother died, she still held a huge collection of his artwork. The family had it valued and paid up US$8.5m in taxes on her estate – a sum not to be sneezed at – but the US tax authorities claim it’s considerably less than they ought to have paid. The IRS has determined that the family undervalued the collection by US$66m, and accordingly still has an outstanding tax liability of nearly US$10m (including penalties for late tax returns and undervaluing assets).

Now the artist’s family are taking the tax authority to court, arguing that the new valuation is far too high. The IRS has been known to exercise what some might describe as poetic licence when valuing art (such as the case of the legally unsaleable Rauschenberg valued at US$65m). But how did a difference of opinion on this scale come about?

The key to the huge discrepancy is explained by the fact that the IRS’s valuation does not take account of the “blockage discount” claimed by the Basquiat family. In the art world, this term refers to a discount which may be claimed by an art-rich estate on the basis of the devaluation which could occur if that estate sold all its art holdings at once. If the market is flooded with a particular artist’s works, the likelihood is the estate won’t get the same value as it would have done had the works been sold one by one.

Probably, any discount allowed will be lower than that claimed by the family, but the outcome of the case remains to be seen. In the meantime, anyone looking for a cheap Basquiat may want to keep an eye on the market.

Source: www.dnainfo.com

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