Doherty v. Commissioner

Georgia and Emelia Doherty (plaintiffs) owned a painting they believed to be by Charles M. Russell. In 1982 and 1983, the Dohertys donated the painting to the Charles M. Russell Museum and claimed a total of $350,000 in charitable-contribution deductions on their tax returns. The Internal Revenue Service (IRS) (defendant) believed that the painting was a forgery worth only $100. The IRS issued a deficiency notice, which the Dohertys challenged in tax court. At trial, the Dohertys presented expert testimony from Ray W. Steele, the former director of the Charles M. Russell Museum. Steele maintained that the painting was authentic, basing his opinion on the painting’s subject matter and on the fast manner in which it was painted. The IRS presented expert testimony from Ginger K. Renner, the owner of a Russell archive and library, who determined that the painting was inauthentic, basing her opinion on the painting’s apparent crudity and lack of realism. The tax court considered both experts’ opinions, accepted that doubt as to the painting’s authenticity would depress its value, and ultimately determined a fair market valuation of $30,000. The determination was based in part on the painting’s disputed authenticity. The Dohertys appealed, arguing that the tax court, by partially basing its valuation on doubt about the painting’s authenticity that did not arise until the IRS dispute, had improperly relied upon a circumstance that did not exist at the donation date.