A few weeks ago I repeated a suggestion relating to bureaucratic valuation of property:
One solution to this problem is to convert any property valuation into an offer for purchase. So when you receive your rates notice the council should be making an offer to purchase your property that the valuation they have estimated.
That was in relation to land tax. The Wall Street Journal relates another example where my proposal could work well.
First some detail about a significant piece of modern art. “Rauschenberg was among the leading American artists of the post-World War II era, and “Canyon” is a “combine,” a kind of large-scale, three-dimensional collage that includes photographs, pieces of wood, a mirror, a pillow and a stuffed bald eagle.”
Okay – so how much would something like that be worth? The answer ever since the marginal revolution is however much somebody would be prepared to pay for it. Prior to that the answer would have been a function of some or all of the costs of production. But what happens when it is illegal to buy that art work?
“But “Canyon” was another story. The presence of the stuffed eagle meant it couldn’t be sold without violating the 1940 Bald and Golden Eagle Protection Act and the 1918 Migratory Bird Treaty Act. Since the artwork couldn’t be sold, logic dictated that it be listed as having zero value, which is what the Sonnabend family’s three appraisers, one of them Christie’s auction house, did.”
Legally the art work is worth nothing – although I’m sure someone would make an generous offer for purchase if it was legal and I suspect others would expend real resources to steal it. So what happened next?
But don’t look for “logic” in any government dictionary. In the summer of 2011, the IRS sent the family an unsigned report appraising “Canyon” at $15 million. When they rejected the valuation, the government upped the ante: The appraisal was increased to $65 million, which yielded a $29.2 million tax bill. And the IRS levied a special “undervaluation penalty” of 40%, applied in cases where a party has made what the IRS deems a “gross understatement” of a property’s value. That added $11.2 million to the tab. Plus interest.
Only in the fantasy bazaar of the U.S. government’s imagination can an item that is worthless carry a multimillion-dollar price tag.
Ms. Sundell and Mr. Homem had another option: donate “Canyon” to a museum. But since they were declaring that it had no value, they would have to forfeit the charitable deductions that normally accrue to individuals in such cases. In the end, this is what they chose to do. “Canyon,” which had been on extended loan to the Metropolitan Museum of Art, now joins five other Rauschenberg combines at MoMA. In exchange, the government has dropped its $40 million-plus claim against Sonnabend’s estate.
If the US government really thought it to be worth $65 million it should have made an offer for purchase.