Doherty v. Commissioner

In 1969, George Doherty (plaintiff) bought a painting for $10,000. He believed the painting, which was on a rough canvas, to be the work of Charles M. Russell, a famous Montanan artist working during the late 1800s and early 1900s. In 1982 and 1983, George and his wife, Emelia Doherty (plaintiff), donated the painting to the Charles M. Russell Museum. For the purposes of deducting the donation from his taxes, the Dohertys represented the fair market value of the painting as $350,000 at the time of donation. The Internal Revenue Service (IRS) (defendant) issued a notice of deficiency, disagreeing with the Dohertys’ valuation of the painting. According to the IRS, the painting was a forgery with a fair market value of, if anything, only $100. The Dohertys challenged the deficiency in tax court, relying upon expert testimony from Ray W. Steele, former curator and director of the Charles M. Russell Museum. During his career, Steele had authenticated the museum’s entire collection, and he testified that the painting was an authentic Russell worth $200,000 at the time of the donation. Steele based his opinion on the fast manner in which the painting was apparently painted and on its subject matter—an action scene featuring cowboys and Native Americans against a western landscape—which was characteristic of Russell’s work. The IRS presented expert testimony from Ginger K. Renner, the owner of the country’s largest Russell library and archive. Renner had authenticated over 500 Russell artworks during her career, and she testified that the painting was not authentic because its style was crude compared to similar authenticated works from the same period and because it lacked the realistic composition of Russell’s other artwork. Both experts also presented evidence of sales prices of comparable Russell works sold around the time of the donation. Prices ranged from $480,000 to $15,000, with a poorer quality painting selling in 1981 for $30,000. The court considered all the evidence to determine the fair market valuation of the painting for deduction purposes.