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Recent Court Decision Determines Importance of Post-Valuation Sales in Estate Tax Appraisals

A recent federal court decision (Estate of Newberger v. Commissioner, U.S. Tax Court, December 2015) should be of interest to both clients and appraisers who prepare federal estate tax appraisals.   According to Wealth Management.com’s Amelia Brankov, the federal court ruling, which was announced late last year, compels appraisers to consider “post-valuation sales and market conditions that are reasonably proximate in time” to the appraisal’s effective date, usually the decedent’s date of death.  This decision could have serious repercussions for attorneys, tax preparers, appraisers and clients working together on federal estate appraisals.  This ruling is especially important to those working in the volatile area of fine art, where previously appraisals may have considered only comparable sales results that predated the effective date of the appraisal. 

The Newberger Estate case involved an original Picasso oil on canvas, Tete de Femme (Jacquline), that was appraised for federal estate tax purposes in July 2009 at $5 million.  Five months later, the painting was consigned to Christie’s London, King Street gallery and offered for sale at a pre-bid estimate of ₤3,000,000 to ₤4,000,000.  The painting sold at Christie’s Impressionist/Modern Evening Sale 7831 on February 2, 2010 for $12,927,874 ($11,484,000 hammer price plus a $1,443,874 buyer’s premium).  In its decision, the U.S. Tax Court found that the estate’s failure to consider the painting’s post-appraisal sale—a sale conducted after the appraisal’s effective date—resulted in a substantial undervaluation of the artwork for estate tax purposes.  The court’s ruling favored the IRS’ adjusted appraisal of $10 million.  It is worth noting that in addition to selling the painting, Christie’s prepared the original estate appraisal for the owners. 

For more information on this important case, read Ms. Brankov’s entire article at http://wealthmanagement.com/valuations/ups-and-downs-estate-valuations-artwork



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