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Petitioners contend that they are not liable for the
deficiencies asserted against them for 1995, 1996, and 1997
because their basis in each work of art in the collection, as
provided under section 1014, is the undiscounted fair market
value that the Panel determined for that work. Essentially,
petitioners contend that if the Panel determined that the
undiscounted value of an individual work of art was $100,000,
that value is their basis in that work under section 1014.
Consequently, petitioners contend that the gallery should have
been allowed to use that undiscounted value in calculating its
gain or loss on the subsequent sale of that work of art, not
$39,580 (i.e., $100,000 discounted by 60.42 percent).
Respondent contends that the basis of the individual works
of art in the collection is the proportionate amount of the
discounted value that was agreed to for estate tax purposes,
which should be used to calculate the gallery’s COGS. Respondent
further contends that petitioners are estopped under the duty of
consistency from claiming that the collection’s discounted value,
as determined for estate tax purposes, is only a presumptive
value that may be rebutted for income tax purposes. We address
each of these contentions in turn.
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