Estate Planning Sales Tax Art Collectors Tax Evasion Use Tax Inherited Art

Published: Jan 16, 2017
By: Marie Arrigo
Topics: Heckerling
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Continuing with our reports from the 2017 Heckerling Institute on Estate Planning

Diana Wierbicki (Withers Bregman LLP, New York), Bonnie Brennan (Christie’s, New York), Courtney Both Christensen (Sotheby’s, New York), Paul R. Provost (New York) and Jennifer Schantz (The New-York Historical Society, New York) constituted the art panel that discussed a myriad of issues on inherited art.

The first part of the session focused on the legal issues that impact art transactions. Ms. Wierbicki stated that New York State is aggressively investigating alleged sales and use tax noncompliance in the art industry. For instance, the Gagosian Gallery’s settlement focused on the Gallery’s obligation to collect and remit New York sales tax when art was released to the purchaser’s fine art shipper for delivery outside of New York. The issues of nexus and characterization of fine art suppliers should be considered. The take-away is to make sure that the seller arranges the shipment of the art and not the buyer.

The Aby Rosen and Victoria Gelfand cases involved improper use of resale certificates to avoid sales tax. In these cases, the art was not resold, but used personally. The state relied on imposing the New York False Claims Act, where there were false claims and records were made. There were other cases of tax evasion of sales tax where art was purchased, shipped to outside states for a “test drive” and then shipped back to New York. The take-away is that when delivering purchased art, consider the sales and use tax provisions of states in which art is purchased and delivered.

The second part of the session focused on how advisors can help art collectors plan ahead. The art panel discussed the issues to consider when donating fine art to a charitable organization. They suggested that they should first research and determine the appropriate institution whose mission aligns with the art. Planning should also allow adequate time for the institution to go through their internal processes to approve the donation or acquisition. The panel also suggested that outright gifts are preferred to “promise” gifts. Also, a cash bequest designated to be used to maintain the artwork should be considered when donating the artwork.

The art panel also suggested several take-aways when planning art transactions:

Collectors should be informed about their artwork and know the value of their collections.
The importance of protecting the art collection, so that the collection’s value is retained, cannot be emphasized enough.
Working with trusted advisors and getting art-specific advice relating to art transactions is an important strategy.
When you sell your art collection is just as important as where you sell it.
Make sure that you are not competing with other works when timing the sale of your art collection.
When executors have art assets, they should consider having appraisers do a walk-through of the property, focusing on safekeeping, security, and paperwork important for authenticating the artwork and its provenance.

The art panel also discussed what the future might hold for art collectors, including changes in technology, the importance of social media, increased regulation and digital art.

For more content stemming from the 2017 Heckerling Institute on Estate Planning, please click here.

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