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Poor Return Preparation Voids Deduction For African Art

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Earlier this month, Heinrich Schweizer got bad news from my favorite Tax Court judge Albert Lauber, “Scholar Al” as Lew Taishoff has dubbed him. Lauber ruled that Schweizer’s failure to meet the disclosure requirements for a charitable contribution of property was not “due to reasonable cause”. The opinion illustrates Reilly’s Fourth Law of Tax planning – Execution isn’t everything, but it’s a lot – with a shoutout to the Seventh Law – Read the instruction. The larger story behind the story of the piece of art given to the Minneapolis Institute of Art at a $600,000 valuation is inherently more interesting than the tax story, but that is the curse of being a tax writer.

The Gift

You can see the gift here – a wooden sculpture of a male figure originating from the Dogon people of Mali estimated to be about 250 years old. It is less than two feet tall. The gift was in honor of William C. Siegmann who had been a Curator of the Arts of Africa and the Pacific Islands at the Brooklyn Museum. Siegmanm, who died in 2011, had fallen in love with African Art while a Peace Corps volunteer in Liberia in the mid-sixties.

Schweizer is an authority on African art. Before founding his firm Schweizer Premodern, he was Director of African and Oceanic Art at Sotheby’s. During his tenure, the value of Sotheby’s annual auction of African art went from $2 million to $55 million.

According to the opinion, Mr. Schweizer had acquired the Dogon sculpture “allegedly” in Paris for $100,000 in 2003. Somehow this disturbed me and sent me down something of a rabbit hole. I mean “Why Paris?”. You can get the short answer from this 2012 piece by Dr. Kwame Opoku – More Dogon artefacts are in the Musée du Quai Branly than in Mali’s national museum.

“Malian cultural heritage has for several decades, undergone a massive transfer toward Europe and the United States. Analyzing the phenomenon in its universality, it seems very clearly to be the translation of an unequal relation between poor (weak) and wealthy (powerful) nations. The cultural assets of poor nations are being exported to rich nations. Examples to the contrary do not exist”.

This issue has become more and more prominent as you can see from this story by Jason Farago about President Marcon speaking about temporary or permanent restitution of African art in French collections. On Schweizer’s watch in 2010 Sotheby’s cancelled a sale of a Benin ivory pendant mask amid allegations that it had been looted during the Benin Expedition of 1897.

The Return And Audit

Out of professional courtesy I will not name the not very large firm that among other things focuses on foreign nationals or the enrolled agent that works for them that handled Schweizer’s return. I will just refer to them as the firm and the preparer. Schweizer, an immigrant from Germany, hired the firm to prepare his first US tax return in 2007 and was still with them for his 2011 return.

In June of 2012 the preparer helped Schweizer request a Statement Of Value from the IRS. This puts the valuation in the hands of art experts (AAS unit), who don’t know whether the valuation is being done for a charitable donation, where the taxpayer wants the value high, or for transfer tax purposes, where the taxpayer want the value low. The package that went to AAS included an appraisal coming in at $600,000 but the appraiser’s qualifications were dubious.

They had not heard back from AAS by the time the return was due so the return went in with a $600,000 deduction. The required From 8283 was a mess:

The Form 8283 appended to petitioner’s 2011 return was missing most of this information. The Dogon sculpture, for which a $600,000 value was claimed, was listed on section A of the form, where taxpayers are instructed to report “Donated Property of $5,000 or Less and Certain Publicly Traded Securities.” On the line calling for a “[d]escription of donated property,” the words “SEE ATTACHED” appeared. But no such attachment was included in the return. Section B of the form was left entirely blank; petitioner thus supplied no information as to the acquisition date or manner of acquisition, and he failed to supply a summary of the sculpture’s physical condition. The signature lines, where the appraiser and an MIA officer were supposed to affix their signatures, were left blank. And petitioner did not attach to his return an appraisal of the artwork as required by section 170(f)(11)(D) for gifts valued in excess of $500,000.

There is dispute about whether Schweizer came to the firm’s office to sign the return of had it sent to him. More significantly is the dispute over whether Schweizer discussed the Form 8283 with the preparer. In Schweizer’s version he noticed the issues and the preparer told him that there was nothing to worry about because of what had been sent in with the request for a Statement Of Value.

IRS selected the return for audit. In its notice of deficiency the primary position was that no deduction at all was allowed due to failure to satisfy statutory and regulatory substantiation requirements. The secondary position was to reduce the deduction to $250,000.

The Opinion

Judge Lauber had ruled on summary judgment that Schweizer had failed to meet the disclosure requirement having failed to attach either a fully completed Form 8283 or an appraisal of any kind. What remained to be determined was whether the failure was due to “reasonable cause”.

Schweizer’s position was that he relied on the advice of the preparer that it was unnecessary to include the appraisal or a fully complete Form 8283. Judge Lauber found no credible evidence for that advice having been given and further that it would have not been reasonable to rely on that advice if it had been given. The preparer did testify and his testimony did not substantiate Schweizer’s testimony. Of course his memory of what exactly had happened eleven years ago trying to push out one more return as October 15 loomed was not that sharp. Judge Lauber gives the profession a lot of credit, perhaps more than we deserve when it comes to that crunch time.

And if petitioner had (as he testified) brought the defective Form 8283 to ——————- attention, we find it implausible that ————-. ————, an experienced return preparer, would not have retrieved from his files the substantially complete Form 8283 that he had previously submitted to the AAS unit.

Judge Lauber goes on to note that this was not Schweizer’s first 8283 rodeo so even if the preparer gave him the bad advice, he should have known better. So no deduction.

Lessons

I don’t know how long it usually takes to hear back from the IRS on art valuation, but it would seem that the wise thing to do is to give them as much time as possible, if you are going that route. This is of course one of many opinions that emphasize the importance of meticulous compliance with donations of valuable property. It is also a rather strange story in that Schweizer’s counsel did not seem to be able to craft a narrative that would have his and the preparer’s stories line up. We will probably never have a way of finding out, but I have to wonder if the firm’s malpractice carrier is sweating this out now.

Other Coverage

Michael Auliso did an interview with Schweizer in 2012 that is available on Tribalartcollector.com.

It is kind of ironic, given the name of the publication that Scweizer remarks:

What amazed me when I entered this field was that most people were still calling it “tribal art.” ………….There is no doubt that the term “tribal” is a historically contingent or quasiimperialist remnant of the colonial era. It is the result of a Western imperial perspective with condescending overtones and reveals a unilateral view on civilizational progress.

Matthew Erskine has How To Avoid Losing A $600,000 Charitable Deduction on forbes.com.

It may seem unfair to deny a deduction just because a form was not filled out correctly, and perhaps it is, but it is not unfair to require that when you do sign a tax return, you have exercised at least ordinary care and prudence in what you are claiming in that return.

Lew Taishoff has WILLFULLY BLIND – PART DEUX.

Ever have a witness tell you not to call him, because his testimony would sink your client? Oh yes.

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A misspelled memorial to the Brontë sisters gets its dots back at last

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LONDON (AP) — With a few daubs of a paintbrush, the Brontë sisters have got their dots back.

More than eight decades after it was installed, a memorial to the three 19th-century sibling novelists in London’s Westminster Abbey was amended Thursday to restore the diaereses – the two dots over the e in their surname.

The dots — which indicate that the name is pronounced “brontay” rather than “bront” — were omitted when the stone tablet commemorating Charlotte, Emily and Anne was erected in the abbey’s Poets’ Corner in October 1939, just after the outbreak of World War II.

They were restored after Brontë historian Sharon Wright, editor of the Brontë Society Gazette, raised the issue with Dean of Westminster David Hoyle. The abbey asked its stonemason to tap in the dots and its conservator to paint them.

“There’s no paper record for anyone complaining about this or mentioning this, so I just wanted to put it right, really,” Wright said. “These three Yorkshire women deserve their place here, but they also deserve to have their name spelled correctly.”

It’s believed the writers’ Irish father Patrick changed the spelling of his surname from Brunty or Prunty when he went to university in England.

Raised on the wild Yorkshire moors, all three sisters died before they were 40, leaving enduring novels including Charlotte’s “Jane Eyre,” Emily’s “Wuthering Heights” and Anne’s “The Tenant of Wildfell Hall.”

Rebecca Yorke, director of the Brontë Society, welcomed the restoration.

“As the Brontës and their work are loved and respected all over the world, it’s entirely appropriate that their name is spelled correctly on their memorial,” she said.

The Canadian Press. All rights reserved.

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Calvin Lucyshyn: Vancouver Island Art Dealer Faces Fraud Charges After Police Seize Millions in Artwork

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In a case that has sent shockwaves through the Vancouver Island art community, a local art dealer has been charged with one count of fraud over $5,000. Calvin Lucyshyn, the former operator of the now-closed Winchester Galleries in Oak Bay, faces the charge after police seized hundreds of artworks, valued in the tens of millions of dollars, from various storage sites in the Greater Victoria area.

Alleged Fraud Scheme

Police allege that Lucyshyn had been taking valuable art from members of the public under the guise of appraising or consigning the pieces for sale, only to cut off all communication with the owners. This investigation began in April 2022, when police received a complaint from an individual who had provided four paintings to Lucyshyn, including three works by renowned British Columbia artist Emily Carr, and had not received any updates on their sale.

Further investigation by the Saanich Police Department revealed that this was not an isolated incident. Detectives found other alleged victims who had similar experiences with Winchester Galleries, leading police to execute search warrants at three separate storage locations across Greater Victoria.

Massive Seizure of Artworks

In what has become one of the largest art fraud investigations in recent Canadian history, authorities seized approximately 1,100 pieces of art, including more than 600 pieces from a storage site in Saanich, over 300 in Langford, and more than 100 in Oak Bay. Some of the more valuable pieces, according to police, were estimated to be worth $85,000 each.

Lucyshyn was arrested on April 21, 2022, but was later released from custody. In May 2024, a fraud charge was formally laid against him.

Artwork Returned, but Some Remain Unclaimed

In a statement released on Monday, the Saanich Police Department confirmed that 1,050 of the seized artworks have been returned to their rightful owners. However, several pieces remain unclaimed, and police continue their efforts to track down the owners of these works.

Court Proceedings Ongoing

The criminal charge against Lucyshyn has not yet been tested in court, and he has publicly stated his intention to defend himself against any pending allegations. His next court appearance is scheduled for September 10, 2024.

Impact on the Local Art Community

The news of Lucyshyn’s alleged fraud has deeply affected Vancouver Island’s art community, particularly collectors, galleries, and artists who may have been impacted by the gallery’s operations. With high-value pieces from artists like Emily Carr involved, the case underscores the vulnerabilities that can exist in art transactions.

For many art collectors, the investigation has raised concerns about the potential for fraud in the art world, particularly when it comes to dealing with private galleries and dealers. The seizure of such a vast collection of artworks has also led to questions about the management and oversight of valuable art pieces, as well as the importance of transparency and trust in the industry.

As the case continues to unfold in court, it will likely serve as a cautionary tale for collectors and galleries alike, highlighting the need for due diligence in the sale and appraisal of high-value artworks.

While much of the seized artwork has been returned, the full scale of the alleged fraud is still being unraveled. Lucyshyn’s upcoming court appearances will be closely watched, not only by the legal community but also by the wider art world, as it navigates the fallout from one of Canada’s most significant art fraud cases in recent memory.

Art collectors and individuals who believe they may have been affected by this case are encouraged to contact the Saanich Police Department to inquire about any unclaimed pieces. Additionally, the case serves as a reminder for anyone involved in high-value art transactions to work with reputable dealers and to keep thorough documentation of all transactions.

As with any investment, whether in art or other ventures, it is crucial to be cautious and informed. Art fraud can devastate personal collections and finances, but by taking steps to verify authenticity, provenance, and the reputation of dealers, collectors can help safeguard their valuable pieces.

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Ukrainian sells art in Essex while stuck in a warzone – BBC.com

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Ukrainian sells art in Essex while stuck in a warzone  BBC.com

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