Estate of O'Keeffe v. Commissioner
United States Tax Court
63 T.C.M. (CCH) 2699 (1992)
- Written by Margot Parmenter, JD
Facts
Georgia O’Keeffe, an American artist, died on March 6, 1986, leaving behind 400 unsold artworks. In calculating estate tax, O’Keeffe’s estate (plaintiff) determined that the aggregate value of the artworks totaled $72,759,000. However, the estate also believed that the fair market valuation of the artworks was subject to a blockage discount—a discount in valuation that reflects the price depression impacting each artwork when many artworks by one artist hit the retail market simultaneously. According to the estate, the appropriate blockage discount for O’Keeffe’s artworks was 75 percent, making the fair market valuation of the artworks $18 million. The Internal Revenue Service (IRS) (defendant) agreed with the estate’s valuation but disagreed about the appropriate blockage discount and determined a tax deficiency. The estate challenged the deficiency in tax court. At trial, the estate presented expert testimony identifying the appropriate market for valuation purposes as single bulk purchasers buying for resale. The IRS’s expert argued that the relevant market for valuation purposes was segmented by price, with the more valuable artworks capable of selling quickly without their salability being impacted by the availability of other, less valuable artworks. The tax court evaluated the evidence to determine the appropriate blockage discount.
Rule of Law
Issue
Holding and Reasoning (Cohen, J.)
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