Biagiotti v. Commissioner

Raymond Biagiotti (plaintiff) collected pre-Columbian artwork, some of which he donated to the Duke University Museum of Art. Biagiotti donated pieces to the museum each year from 1976 to 1980. For the donations, Biagiotti claimed charitable-contribution deductions on his tax returns, which the Internal Revenue Service (IRS) (defendant) mostly disallowed, disagreeing with Biagiotti’s valuation of the artwork. The IRS ultimately approved a total deduction amount of $1,600 for all the artwork Biagiotti donated over the five-year period. Biagiotti claimed a total deduction of $191,825. On February 25, 1983, the IRS issued Biagiotti a notice of deficiency, alerting him that he owed additional income tax because of his overvaluation. Biagiotti disputed the IRS’s valuation of the donated artwork in tax court. At trial, both Biagiotti and the IRS offered expert testimony on the fair market value of the artwork. One of Biagiotti’s experts, an art dealer named Ronald Dammann, testified that he specialized in the pre-Columbian art market and knew about dealer sales of comparable artworks from his network of fellow dealers throughout the country. Dammann also testified that most sales of pre-Columbian art took place via gallery sales and that auction sales of pre-Columbian artwork, which involved dealers and other resellers in addition to consumer purchasers, represented only a small portion of all sales. Dammann appraised Biagiotti’s donated artworks at a total value of $72,775 and stated that he had arrived at that valuation by considering sales prices of comparable artworks that were available for purchase in his own gallery and in other, similar galleries. Guided by the expert testimony, the court evaluated the facts to arrive at a fair market valuation of the donations for tax-deduction purposes.