In the recent case (February 22, 2017) of the Estate of Kollsman v. Commissioner, the U.S. Tax Court ruled that the estate had significantly underreported the value of artworks to the IRS for estate tax purposes. The court found that the values were unpersuasive because the auction house specialist who had prepared the appraisal was found to have exaggerated the poor condition and risk of cleaning the Old Master paintings under consideration. More importantly, the auction specialist who produced the appraisal report was, at the same time, soliciting the works for consignment, which could result in significant commissions from the sale. Not surprisingly, the court found that the auction specialist had a significant conflict of interest in preparing the appraisal report stating: “he had a direct financial incentive to curry favor with [the executor]” by providing “‘lowball’ estimates that would lessen the Federal estate tax burden borne by the estate.”
Collectors, estate administrators and fiduciaries should be aware that to reduce the risk that an appraisal prepared for Estate Tax calculation or Charitable Contribution will later be deemed unreliable, independent appraisers who have no financial interest in the property should be retained. When hiring an appraiser look for an appraiser who prepares appraisal reports in compliance with the Uniform Standards of Professional Appraisal Practice USPAP, the generally recognized performance standards for the appraisal profession in the U.S.. All reports conforming to USPAP include a certification that the opinions expressed in those reports are the appraiser’s unbiased professional opinions, and that the appraiser has no present or prospective interest in the property being appraised or personal interest with respect to the parties involved (or if such interests exist, they must be disclosed).
Art fraud is a multi-billion dollar industry in the United States. Consequently, authenticity, the degree to which an art work can be said to have been indisputably created by an artist, is a key aspect of value and of vital interest to both appraisers and collectors.
At a recent seminar in Los Angeles, attorney Christine Steiner of Sheppard Mulllin and Debra Burchett-Lere, Director of the Sam Francis Foundation, reported on the evolving legal ramifications for authenticating artwork. In recent years, a number of high profile court cases have addressed the liability of sellers, buyers, auction houses, independent experts and artist’s foundations when it comes to authenticating works of art. These cases illustrate the challenges of authenticating works of art which have included disagreements among recognized experts, the sophistication of art forgery techniques, as well as differing authentication standards in the United States and other countries. Other complicating factors in determining the authenticity is the absence of catalogue raisonnés and other comprehensive documentation on an artist’s works.
Sam Francis: Catalogue Raisonné of Canvas and Panel Paintings, 1946–1994 Edited by Debra Burchett-Lere with featured essay by William C. Agee (Photo courtesy the Sam Francis Foundation, California)
Because of the increasingly litigious environment in the art world, and the high costs of defending opinions of authenticity, it is becoming more difficult to get artist’s foundations, authentication boards and independent experts to render opinions. One high-profile example is the Andy Warhol Foundation which recently announced that it is disbanding its authentication board. Other artist’s foundations are reviewing their liability in the event of disputes over the authenticity of specific works. These cases are impacting the creation of catalogue raisonnés, the authoritative catalogues that document an artist’s production of works over a lifetime. Consequently, provenance, the history of ownership of an artwork, is more important than ever as an element of authenticity.
The American Society of Appraisers states that appraisers witness, identify and value, but do not authenticate. However, appraisers frequently must take into consideration the authenticity of artworks as part of the appraisal process. This is done through the careful physical inspection of the artwork, consultation with experts or the artists themselves, research of published material such as catalogue raisonnés, and in some cases, scientific testing. It is often necessary for appraisers to examine works outside the frame in order to look for key markers of attribution including signatures, watermarks, edition number, and titles. Discrepancies between the art work and documentation on the artist and their known works that raise questions about the authenticity of a given work must be discussed in the appraisal report.
What should collectors do?
Purchase art from reputable sources and request warranties of authenticity. A warranty, as opposed to a certificate, should offer the buyer protection and recourse if the work is discovered not to be authentic at a later date.
When purchasing a work of art seek information on the provenance, the prior history of ownership of the work.
Maintain all documents relating to the acquisition of a work of art, such as sales receipts, as well as provenance.
If a work of art is reframed retain all information that may be affixed to the prior frame or enclosure such as gallery stamps and stickers, written notes, custom’s stamps, etc…
If you own a work by an artist who is represented by a foundation, it may be beneficial to inquire if the work can be registered, particularly if the foundation is documenting the artist’s work in a single or multiple catalogue raisonnés. The Sam Francis Foundation, for example, offers the owners of Francis works the opportunity to register the work and to obtain a Documentation Data Sheet with information on the creation and history of the work.
For additional information go to http://www.samfrancisfoundation.com