An interesting case between the IRS and heirs to an art collection has arisen.   Ileana Sonnabend’s heirs are battling with the IRS over the value of a piece of art known as The Canyons.  The work is a collage that features a stuffed bald eagle.  Bald Eagles have been under federal protection since 1940.  Bald eagles are not permitted to be sold, whether living or dead under the act.

The artist was able to use the bald eagle because he was able to show the US Fish and Wildlife department that the eagle was killed prior to the act – allegedly by a member of Teddy Roosevelt’s rough riders.

The IRS has put a value on the artwork of $65 million.  However, the art cannot legally be sold.  The heirs listed the value of the work at zero.  The general rule for determining the value of property is called the willing buyer, willing seller.  Under the Treasury Regulations, “the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts”.  Treas. Reg. 20.2031-1(b).  This issue is complicated because; a willing buyer would be violating the law and would be subject to prosecution for the mere purchase of the artwork.

One of the more troubling aspects of the case is the idea that a “black market” may determine the value of the work.  The IRS has claimed that the black market value was not considered, however a former IRS employee in the art appraisal division had hinted that the artwork’s value may be increased because of the black market value.  This is problematic because the IRS would be creating a higher value by supposing the heirs would use the artwork for an illegal purpose rather than a legal purpose, in order to determine the value.   Further, many items we all posses may have a higher value on the black market than in the legal marketplace.  Items such as ID’s and Social Security cards have no value in the legal marketplace – however they can be worth considerably more on the black market.