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Taxation Plus
by
Ralph E. Lerner
RalphELerner.com
ralph@artworldadvisors.com
590 Madison Ave, New York, NY, 10022
(212) 521-4437
http://www.RalphELerner.com/
Where is the Painting?
http://www.RalphELerner.com/
Cost
FMV
Deduction (within 30% limit)
Tax Saved (Fed. 35.0 rate)
Cost
UNTAXED PROFIT
$ 1,000
$ 10,000
$ 10,000
$ 3,500
$ 1,000
$ 2,500
and you enjoyed the use of the donated item
for the period of ownership
The Art Tax Shelter
http://www.RalphELerner.com/
The Four Questions
1. What type of donee organization - public charity or
private foundation?
http://www.RalphELerner.com/
The Four Questions
1. What type of donee organization - public charity or
private foundation?
2. What type of property - ordinary income type property
or long-term capital gain type property?
http://www.RalphELerner.com/
1. What type of donee organization - public charity or
private foundation?
2. What type of property - ordinary income type property or
long-term capital gain type property?
3. Have you satisfied the related-use rule?
The Four Questions
http://www.RalphELerner.com/
The Four Questions
1. What type of donee organization - public charity or private
foundation?
2. What type of property - ordinary income type property or
long-term capital gain type property?
3. Have you satisfied the related-use rule?
4. Have you obtained a qualified appraisal by a qualified
appraiser?
http://www.RalphELerner.com/
FUTURE INTEREST RULE
Section 170(a)(3) - There is no charitable deduction for a gift
of a future interest in tangible personal property until there
is no intervening interest in, right of possession of, or
enjoyment of the property held by the donor, spouse or
certain related individuals. http://www.RalphELerner.com/
FRACTIONAL INTEREST
Winokur v. Commissioner
Women of Warhol
Marilyn, Liz & Jackie
http://www.RalphELerner.com/
CHARITABLE
REMAINDER TRUST
However, an income tax deduction
would be allowed under section
170(a)(3) when the trustee sells the
musical instrument.
http://www.RalphELerner.com/
FMV
COST
GAIN
TAX
NET
7%
$5,100,0000
100,000
5,000,000
1,850,000
3,350,000
227,500
$5,100,0000
100,000
5,000,000
- 0 -
5,100,000
357,000
129,500
per yr.
28% LTCG
more per yr.
Note: 3,250,000 subject to 50%
Estate tax leaves Net $1,625,,000
(Fed + St)
per yr.
35.0% LTCG
2 children and spouses
6 grandchildren
10 x 10,000 =
tuition
equalizes after 12 years
$100,000
30,000
130,000
1.170A-4(b)(3)(i)
The use by a trust of tangible personal property contributed to it for the benefit of
a charitable organization is an unrelated use if the use by the trust is one which
would have been unrelated if made by the charitable organization.
http://www.RalphELerner.com/
Edgar Degas,
LANDSCAPE WITH SMOKE STACKS
Pastel over monotype, ca. 1890-93
http://www.RalphELerner.com/
FAIR MARKET VALUE
Hypothetical Willing Buyer/
Hypothetical Willing Seller
http://www.RalphELerner.com
/
Quedlinburg Treasures
Fair Market Value is determined in the retail market
in which the item is most commonly sold to the
public. http://www.RalphELerner.com/
Rev. Proc. 96-15
Advance Valuation Ruling Request
1. Applies to items $50,000 and above
2. User fee of $2,500 for first three items, $250 for each
additional item
3. Requires a qualified appraisal by a qualified appraiser
4. Can be used for income tax or estate tax purposes
5. The ruling, once issued, is binding on the IRS
http://www.RalphELerner.com/
STATUTE OF
LIMITATIONS - TITLE
§ 2-275
1 - prompt filing of suits
2 - protection for a defendant after period of repose -
evidence can be lost or destroyed with passage of time
3 - promotion of free trade
An action for breach of any contract for sale must be
commenced within four years after the cause of action
has accrued.
http://www.RalphELerner.com/
Patriarchate of Jerusalem
v. Christie’s
An owner’s reasonable diligence
in locating his lost property is
highly relevant to a laches
defense
Doing nothing for 70 years is not
reasonable
Archimedes Palimpsest 10th
century manuscript contains
writing of Archimedes
http://www.RalphELerner.com/
STATUTE OF LIMITATIONS -
AUTHENTICITY
Rosen v. Spanierman
Four year statute of limitations
applies.
A warranty of authenticity does
not extend to future
performance of the goods.
Lack of knowledge of the breach
is not a defense.
The Misses Wertheimer
John Singer Sargeant
http://www.RalphELerner.com/
BALOG v. CENTER ART
GALLERY
Hawaii
In the case of artwork which is certified authentic by an expert in the
field or a merchant dealing in goods of that type, such a
certification of authenticity constitutes an explicit Warranty of
future performance sufficient to toll the U.C.C.’s statute of
limitations - but only in Hawaii http://www.RalphELerner.com/
DAMAGES - BREACH WARRANTY
TITLE
Menzel v. List
1932 - Menzel Purchases for $150
1941 - Painting taken by Nazis
1941-1955 - Location not known
1955 - Perls purchases from dealer
in Paris for $2,800
1955 - Perls sells to List for $4,000
1962 - Menzel say “Give it back”
1966 - Jury for Menzel - value now
$22,500
Jacob’s Ladder
Marc ChagallMeasure of damages $22,500
http://www.RalphELerner.com/
DAMAGES - FRAUD
Nacht v. Sotheby’s
1981 - Nacht purchases for
$23,815
1996 - Nacht discovers it is not
authentic - if it was
authentic value
$225,000
Measure of damages $23,815 Francis Picabia
Josias
1930
http://www.RalphELerner.com/
ROTHKO
Avoid Conflicts of Interest
Duty of Loyalty
An executor must care and manage the assets and affairs of the estate as
would prudent persons of discretion and intelligence accented by “not honesty
alone” but by the punctilio of an honor the most sensitive.
http://www.RalphELerner.com/

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Ralph E Lerner: Taxation Plus.ppt

  • 1. Taxation Plus by Ralph E. Lerner RalphELerner.com ralph@artworldadvisors.com 590 Madison Ave, New York, NY, 10022 (212) 521-4437 http://www.RalphELerner.com/
  • 2. Where is the Painting? http://www.RalphELerner.com/
  • 3. Cost FMV Deduction (within 30% limit) Tax Saved (Fed. 35.0 rate) Cost UNTAXED PROFIT $ 1,000 $ 10,000 $ 10,000 $ 3,500 $ 1,000 $ 2,500 and you enjoyed the use of the donated item for the period of ownership The Art Tax Shelter http://www.RalphELerner.com/
  • 4. The Four Questions 1. What type of donee organization - public charity or private foundation? http://www.RalphELerner.com/
  • 5. The Four Questions 1. What type of donee organization - public charity or private foundation? 2. What type of property - ordinary income type property or long-term capital gain type property? http://www.RalphELerner.com/
  • 6. 1. What type of donee organization - public charity or private foundation? 2. What type of property - ordinary income type property or long-term capital gain type property? 3. Have you satisfied the related-use rule? The Four Questions http://www.RalphELerner.com/
  • 7. The Four Questions 1. What type of donee organization - public charity or private foundation? 2. What type of property - ordinary income type property or long-term capital gain type property? 3. Have you satisfied the related-use rule? 4. Have you obtained a qualified appraisal by a qualified appraiser? http://www.RalphELerner.com/
  • 8. FUTURE INTEREST RULE Section 170(a)(3) - There is no charitable deduction for a gift of a future interest in tangible personal property until there is no intervening interest in, right of possession of, or enjoyment of the property held by the donor, spouse or certain related individuals. http://www.RalphELerner.com/
  • 9. FRACTIONAL INTEREST Winokur v. Commissioner Women of Warhol Marilyn, Liz & Jackie http://www.RalphELerner.com/
  • 10. CHARITABLE REMAINDER TRUST However, an income tax deduction would be allowed under section 170(a)(3) when the trustee sells the musical instrument. http://www.RalphELerner.com/
  • 11. FMV COST GAIN TAX NET 7% $5,100,0000 100,000 5,000,000 1,850,000 3,350,000 227,500 $5,100,0000 100,000 5,000,000 - 0 - 5,100,000 357,000 129,500 per yr. 28% LTCG more per yr. Note: 3,250,000 subject to 50% Estate tax leaves Net $1,625,,000 (Fed + St) per yr. 35.0% LTCG 2 children and spouses 6 grandchildren 10 x 10,000 = tuition equalizes after 12 years $100,000 30,000 130,000 1.170A-4(b)(3)(i) The use by a trust of tangible personal property contributed to it for the benefit of a charitable organization is an unrelated use if the use by the trust is one which would have been unrelated if made by the charitable organization. http://www.RalphELerner.com/
  • 12. Edgar Degas, LANDSCAPE WITH SMOKE STACKS Pastel over monotype, ca. 1890-93 http://www.RalphELerner.com/
  • 13. FAIR MARKET VALUE Hypothetical Willing Buyer/ Hypothetical Willing Seller http://www.RalphELerner.com /
  • 14. Quedlinburg Treasures Fair Market Value is determined in the retail market in which the item is most commonly sold to the public. http://www.RalphELerner.com/
  • 15. Rev. Proc. 96-15 Advance Valuation Ruling Request 1. Applies to items $50,000 and above 2. User fee of $2,500 for first three items, $250 for each additional item 3. Requires a qualified appraisal by a qualified appraiser 4. Can be used for income tax or estate tax purposes 5. The ruling, once issued, is binding on the IRS http://www.RalphELerner.com/
  • 16. STATUTE OF LIMITATIONS - TITLE § 2-275 1 - prompt filing of suits 2 - protection for a defendant after period of repose - evidence can be lost or destroyed with passage of time 3 - promotion of free trade An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. http://www.RalphELerner.com/
  • 17. Patriarchate of Jerusalem v. Christie’s An owner’s reasonable diligence in locating his lost property is highly relevant to a laches defense Doing nothing for 70 years is not reasonable Archimedes Palimpsest 10th century manuscript contains writing of Archimedes http://www.RalphELerner.com/
  • 18. STATUTE OF LIMITATIONS - AUTHENTICITY Rosen v. Spanierman Four year statute of limitations applies. A warranty of authenticity does not extend to future performance of the goods. Lack of knowledge of the breach is not a defense. The Misses Wertheimer John Singer Sargeant http://www.RalphELerner.com/
  • 19. BALOG v. CENTER ART GALLERY Hawaii In the case of artwork which is certified authentic by an expert in the field or a merchant dealing in goods of that type, such a certification of authenticity constitutes an explicit Warranty of future performance sufficient to toll the U.C.C.’s statute of limitations - but only in Hawaii http://www.RalphELerner.com/
  • 20. DAMAGES - BREACH WARRANTY TITLE Menzel v. List 1932 - Menzel Purchases for $150 1941 - Painting taken by Nazis 1941-1955 - Location not known 1955 - Perls purchases from dealer in Paris for $2,800 1955 - Perls sells to List for $4,000 1962 - Menzel say “Give it back” 1966 - Jury for Menzel - value now $22,500 Jacob’s Ladder Marc ChagallMeasure of damages $22,500 http://www.RalphELerner.com/
  • 21. DAMAGES - FRAUD Nacht v. Sotheby’s 1981 - Nacht purchases for $23,815 1996 - Nacht discovers it is not authentic - if it was authentic value $225,000 Measure of damages $23,815 Francis Picabia Josias 1930 http://www.RalphELerner.com/
  • 22. ROTHKO Avoid Conflicts of Interest Duty of Loyalty An executor must care and manage the assets and affairs of the estate as would prudent persons of discretion and intelligence accented by “not honesty alone” but by the punctilio of an honor the most sensitive. http://www.RalphELerner.com/