Estate of Smith v. Commissioner
United States Tax Court
57 T.C. 650 (1972)
- Written by Margot Parmenter, JD
Facts
David Smith was an artist who made nonrepresentational metal sculptures. When he died, Smith left behind 425 unsold sculptures. On its tax return, his estate (plaintiff) valued the sculptures at $714,000 for purposes of the estate tax. The Internal Revenue Service (IRS) (defendant) disagreed with the estate’s valuation of the sculptures and issued a deficiency. The estate challenged the deficiency in tax court. It argued that although the fair market value of all the sculptures, taken together, was $4,284,000, this value should be discounted to incorporate the depression that would result from all of the sculptures hitting the retail market simultaneously—a phenomenon commonly referred to in business tax law as the blockage discount. The estate further asserted that the blockage discount would depress the fair market valuation by 75 percent. Though the IRS initially valued the sculptures at $5,256,918, in tax court, it modified its fair market valuation of all of the sculptures, taken together, to match the estate’s. However, the IRS argued that the blockage discount did not apply and asserted that the fair market valuation should not be discounted. The tax court considered whether the blockage discount applied to the art market to decrease the valuation of the sculptures.
Rule of Law
Issue
Holding and Reasoning (Tannenwald, J.)
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