Estate of Bernard J. Reis v. Commissioner

Mark Rothko was a renowned American painter. In his will, Rothko bequeathed a number of his paintings to the Mark Rothko Foundation (foundation). Bernard Reis was a director of the foundation and an executor of Rothko’s will. Reis was also an officer of the Marlborough Gallery (gallery), which had a substantial art-sales business. In 1970, Reis and the other executors of Rothko’s estate entered into a contract with the gallery giving the gallery exclusive sales rights for 12 years with respect to the paintings Rothko bequeathed to the foundation. The contract proved controversial and led to substantial litigation. A New York court ordered Reis removed from his role as executor of Rothko’s estate, voided the contract, and awarded monetary damages to the estate. The controversy also led to an Internal Revenue Service (IRS) (defendant) audit of the foundation. The IRS determined that Reis’s involvement in the contract constituted improper self-dealing and imposed millions of dollars in excise taxes on Reis. Reis died in 1978, and the assessed taxes became a liability of his estate (plaintiff). The executors of Reis’s estate petitioned the United States Tax Court, challenging the IRS’s imposition of self-dealing excise taxes on Reis. The executors of Reis’s estate argued that Reis could not have engaged in self-dealing with respect to the foundation’s assets because the paintings in question were not the foundation’s assets but Rothko’s estate’s assets. The executors of Reis’s estate and the IRS filed motions for summary judgment.