The Art of Valuing Art – The Elkins Estate vs. the I.R.S.

Those of us working in the Estate Planning practice area of law followed closely throughout 2014 the ‘saga’ of the ‘Elkins Estate’ vs. the IRS (and many of us applauded the outcome on behalf of our art-owning clients).

As some of you know who have read my bio, I started my career with the IRS, so for me the interest was compelling: a wealthy estate vs. the might of the Internal Revenue Service.

The case basically revolved around 64 pieces of art work acquired by Mr. and Mrs. Elkins (Texas) during their lifetime and the valuation of the fractional interests in the artworks (fractional shares of the artworks being given to their children via a GRIT Trust.)  The New York Times called the case “A Potential Game Changer for Fractional Art Interest” (Oct.3, 2014).

Many of us have heard of individuals who purchase a “fractional share” of an expensive race horse (albeit perhaps not the horse itself, but rather in its winnings/stud capabilities). Fewer of us have in- depth knowledge of ‘fractional interests in works of art”. But as the case evolved, the art world (and estate planners; financial advisors; wealth managers; art dealers; art valuators) sat up and took notice.

The case began in 2006, upon the death of Mr. Elkins, and the estate had been battling in the courts ever since.  For an excellent overview of the case and its outcome you can read in its entirety the New York Times article of Oct. 3, 2014.  For a more in depth review and an excellent synopsis of the case including general principles of law; burden of proof and expert opinions/testimony you can read additional details at

Two salient points of the case are that the I.R.S gives a “discount” on a tax bill (for art)– (a) recognizing that a partial share (of a work of art) would be hard to sell (therefore is of less value) to a (hypothetical) buyer who is not a family member and (b) the (hypothetical) purchaser of a partial share (of art) has little control over future transaction in a “fractional ownership situation”.  Further, one IRS expert noted “there is no established marketplace for sale of a partial interest in a work of art.”

The Elkins estate was awarded a refund of $14 million plus interest (of taxes) – which is a hefty discount indeed! Apparently it is just as important to know “how” to own art as it is to decide “what” art to own.

Valuing art ‘shares’ is…well, it is an ART…not a science!

 Working to Preserve Your Wealth and Protect Your Future in a Constantly Changing World.

This post has been brought to you through the Law Office of Barbara Ann Dalvano.  This information is provided for educational purposes only and to generate ideas, provoke thought and facilitate conversation.  It is not intended to create an attorney-client relationship.  Each person’s situation is different and this information should not and cannot be relied upon as legal, tax, accounting or investment advice.  Please read the entire disclaimer for more important information.

Barbara Ann Dalvano, Esq.

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About Attorney Barbara Ann Dalvano

Attorney in Denver, Colorado with extensive practice experience in the areas of Estate Planning, Wills and Trusts, Business Succession Planning, Probate, Contract Law.

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