In the Eye of the Beholder: Appraisals of Art for Estate Tax Liability

By Emily Lanza

In February 2017, the U.S. Tax Court ruled that the estate of a deceased New York woman, Eva Franzen Kollsman, undervalued $2.4 million worth of art on the estate tax return. The assets at issue before the Tax Court were two Old Master paintings by Pieter and Jan Brueghel held by the decedent at her death. The IRS claimed before the Tax Court that the Kollsman estate underreported the values of the two Old Master paintings resulting in a $781,488 federal estate tax deficiency.

In reaching this decision, the Tax Court not only rejected but also criticized the appraisals made for the estate of the two Old Masters by George Wachter, Vice President of Sotheby’s North America and South America. The Tax Court dismissed Estate's declaration and the valuations made by Wachter, finding that his valuations were “unreliable and unpersuasive” due to his direct conflict of interest and misconstrued analysis of the Old Master paintings. 

The opinion of the Tax Court in the Estate of Eva Franzen Kollsman v. Commissioner of Internal Revenue demonstrates the importance of having a justifiable and objective appraisal when determining the tax liability of an estate. The valuation of art is not an exact science and may change depending on the “eye of the beholder.” However, in order to determine the precise tax liability of an estate, appraisers and estate executors must adhere to Internal Revenue Service (IRS) guidelines, professional codes of ethics, and the legal requirements within the Tax Code to ensure some level of objectivity and consistency. What were the shortcomings of the appraisal conducted for the Kollsman estate and what are the lessons to be learned from this case?