Ferrari v. Commissioner

The Ferraris (plaintiff) donated 21 pre-Columbian artworks to Duke University from 1978 to 1981, for which they claimed charitable-contribution deductions on their taxes. The Internal Revenue Service (IRS) (defendant) partially denied the claimed deductions, disagreeing with the Ferraris’ valuation of the donated artworks. In 1987, the IRS issued a notice of deficiency, which the Ferraris challenged in tax court. At trial, the Ferraris presented expert testimony from an art dealer named Ronald Dammann. Dammann appraised the value of each donated artwork on the basis of comparable retail sales in art galleries dealing in similar pre-Columbian artworks. Dammann testified that the price a retail customer would pay for similar artworks ranged widely because pricing such artwork was a matter of professional judgment, and prices varied according to gallery markup. The IRS offered expert testimony from Claudia Giangola, a member of the IRS’s Art Advisory Panel and an art dealer. Giangola testified that the range of retail sales prices for comparable artworks was 15 to 20 percent of the high end of the market. The two experts, however, disagreed in their appraisal of the retail value of all but two of the 21 pieces, offering widely varying price ranges. The Ferraris argued that the tax court was required to choose between the two experts’ valuations and could not substitute its own judgment regarding the fair market value for the purposes of determining allowable charitable-contribution deductions.