The punk philosopher Iggy Pop once said, “When it comes to art, money is an unimportant detail. It just happens to be a huge unimportant detail.” While we like to think of art as priceless, the sad reality is that with few exceptions, art is just another commodity to be bought and sold.
This week’s clash between art and commerce takes us to South Korea, where Lee Kun-hee, son of Samsung Electronics founder Lee Byung-chull, spent 29 years at the helm of the family business. Lee didn’t just turn Samsung into the world’s largest manufacturer of smartphones, televisions, and memory chips. He turned himself into the richest man in Korea. He even picked up a criminal conviction for tax evasion (later pardoned by President Lee Myung-bak). But that’s not what brings us here today.
Lee died last October with a $21 billion fortune including an art collection, started by his father, worth about $2.5 billion. Now it’s time for his heirs to tell the government how they’re going to cover $10 billion in estate tax. (They’ll have five more years to pay.) The collection includes an astounding 13,000 pieces. Some are international masterpieces from artists like Picasso, Monet, and pop prince Andy Warhol. But most are ancient Korean treasures. So how will Lee’s heirs raise the cash to cover the bill?
Samsung could boost its dividend to help finance the bill. However, a group of former culture ministers has proposed letting the heirs pay with the art itself. That would avoid a fire sale that depresses prices, would keep the art in the country, and would make it available to museums that can’t afford to buy it on their own. Give it some thought and you’ll probably agree it’s a genius idea. The same principal might also apply to those who own trophy real estate suitable for parks, recreation, or other civic uses.
Valuing works by creators like Picasso and Monet is as much an art as a science itself. Here in the States, the IRS maintains an Art Advisory Panel with 25 experts who meet twice a year to review appraisals submitted with income, gift, and estate tax returns. “Panel discussions are lively and serious,” according to an IRS report, and “despite the different perspectives of dealers, museum curators, and scholars, substantial disagreements are rare.” The Panel reviews about 500 works per year, generally valued at $50,000 or up.
In the end, though, even the Panel sometimes gets it wrong. In 2012, the heirs of art dealer Ileana Sonnabend inherited a 1959 collage by Robert Rauschenberg titled “Canyon” that included a stuffed bald eagle. They valued it at zero because a 1962 amendment to a 1940 law made it an object that is literally “ill-eagle” to sell. But that didn’t stop the Panel from assessing it at $65 million (based on a potential black-market sale) and triggering $40.9 million in taxes and penalties. The heirs settled by donating the work to the MOMA.
Changing art markets and rising art prices promise to make these sort of clashes more common. We may see more with million-dollar auction prices for “non-fungible tokens”: digital artworks, recordings, and even tweets stored on blockchain, certified as unique and not interchangeable. (We’ll forgive you for wondering why NFTs are worth more than the $39 you can pay to name a star.)
Your own art collection may not extend past the velvet print of dogs playing poker that’s hiding in your basement playroom. But that doesn’t mean you can’t canvass the tax code for the same strategies that major collectors use to whitewash unwanted levies. Just call us for a plan, and we’ll make beautiful art with your finances.