Is a stuffed American bald eagle worth $65 million or $0? This is a question raised in the estate of the late art dealer Ileana Sonnabend. Ms. Sonnabend’s estate, valued at approximately $876 million, contains a sizeable art collection by such notable artists as Jeff Koons, Roy Lichtenstein, Andy Warhol, and Cy Twombly. Included in this art collection is Canyon created by Robert Rauschenberg in 1959. Canyon is a collage on canvas that uses mixed media including: oil, house paint, pencil, paper, fabric, metal, buttons, nails, cardboard, printed paper, photographs, wood, paint tubes, mirror string, pillow and a stuffed American bald eagle. Yes, you read correctly, Canyon has a stuffed American bald eagle attached to the canvas. Ms. Sonnabend purchased Canyon for her personal collection in 1959.

Canyon is considered illegal art because a dead American bald eagle, an endangered species, is included in it. The use of the American bald eagle in Canyon violates the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Treaty Act. These federal laws bar possessing or trafficking in an American bald eagle, whether it is dead or alive. In 1981, the Department of Fish & Wildlife contacted Ms. Sonnabend to inform her that her ownership of Canyon violated federal laws. Thereafter, Ms. Sonnabend was able to obtain a permit authorizing her to retain Canyon and to loan it to museums; but, she was restricted from selling it or transferring it for sale purposes. Ms. Sonnabend was allowed this permit because the artist, Robert Rauschenberg, made a written statement declaring that the American bald eagle included in Canyon had been killed before 1940, prior to the enactment of the 1940 Bald and Golden Eagle Protection Act.

Upon Ms. Sonnabend’s death, Christie’s, the auction house engaged to appraise Canyon for Ms. Sonnabend’s federal estate tax return, valued Canyon at $0 because it is illegal art and there is no legal resale market for it. The personal representative of  Ms. Sonnabend’s estate could not sell Canyon without facing criminal penalties. Unfortunately, the IRS did not agree with Christie’s appraisal.

The IRS audited Ms. Sonnabend’s federal estate tax return and issued a Notice of Deficiency to the estate concluding that Canyon had a value of $65 million and that the estate owed an additional $29 million in estate tax and an $11.7 million penalty for substantially undervaluing Canyon on Ms. Sonnabend’s federal estate tax return.

In a recent Forbes article, the attorney for the estate stated that he contacted the IRS to complain about the $65 million value assigned to Canyon. The estate’s attorney further stated that the head of the IRS art panel informed him that the $65 million value for Canyon was justified because there could be a “black market” for the painting. According to the estate’s attorney, the head of the IRS art panel suggested that a “recluse billionaire in China might want to buy it and hide it.”  The estate has filed suit in the U.S. Tax Court to contest the $65 million value.

Where does this leave a person owning illegal art?  Well, there appears to be two options: (1) he or she could attempt to locate the reclusive Chinese billionaire to sell the illegal art or (2) he or she could destroy the art before he or she dies in order to avoid the estate taxes attributable to it . Hopefully, the U.S. Tax Court will serve as the voice of reason in this matter and rule against the IRS’ black market valuation of Canyon.

Canyon is now hanging at New York’s Metropolitan Museum of Art.

Reference: Forbes (February 23, 2012) “Even Rich Heirs Deserve A Fair Shake From The IRS”

If you would like to discuss this or other trusts and estates issues, please contact the attorneys at Drucker Law Offices, 468 North Camden Drive, 2nd Floor, Beverly Hills, CA 90210, 310.285.5375 Tel, 310.444.9754 Fax, www.druckerlaw.com