Wherein Annie Leibovitz Becomes a Tax Shelter

[jmlynek]

http://www.cbc.ca/news/canada/nova-...-photos-caught-in-canadian-quandary-1.4181765

2,000 prints for $4.5m works out to $2,250/print. At $20m it's $10k per. Personally, I think that the Canada Revenue Agency is spot-on for refusing to endorse this scam.

Thoughts?

 

[removed account4]

because she is not ... canadian-born ?

 

[faberryman]

Buy for $4.75M and two days later attempt to have it valued at $20M? Sounds like a tax scam. Setting aside for the moment the issue of whether the photographs are of "outstanding significance" and "national importance", if it was an arms length transaction, then the tax authority ought to value the collection at $4.75M. That of course would provide a much smaller tax benefit to the donors, but if their intention was a "transformative philanthropic gift", then that should pose no issue for them.

 

[MattKing]

because she is not ... canadian-born ?

Wouldn't make a difference.
It is a donation from a Canadian resident to a not-for-profit museum or art gallery in Canada. If the material donated meets specific criteria, the donation can entitle the donor to a tax deduction.
Historically, a lot of the assets acquired by museums and art galleries were acquired this way.
Unfortunately, the program started being heavily abused by shady tax "advisers". There has been a lot of backlash - arguably resulting it becoming too restrictive.

 

[Richard Man]

Art "donations" to museums and galleries have been a time-honored way to inflate art prices. OTOH, presumably it does get the arts out to public eyes... eventually and hopefully?

 

[MattKing]

Buy for $4.75M and two days later attempt to have it valued at $20M? Sounds like a tax scam. Setting aside for the moment the issue of whether the photographs are of "outstanding significance" and "national importance", if it was an arms length transaction, then the tax authority ought to value the collection at $4.75M. That of course would provide a much smaller tax benefit to the donors, but if their intention was a "transformative philanthropic gift", then that should pose no issue for them.

It was bought when Liebovitz was at the edge of bankruptcy, so the discussion in the article about the price makes sense.
The seller could have held it and then sold it instead - quite possibly for something quite close to the $20,000,000.
Would you say the same if the gallery turns around and sells it for the $20,000,000?

 

[faberryman]

It was bought when Liebovitz was at the edge of bankruptcy, so the discussion in the article about the price makes sense.
The seller could have held it and then sold it instead - quite possibly for something quite close to the $20,000,000.
Would you say the same if the gallery turns around and sells it for the $20,000,000?

Most recent sale price is the best indicator of value. If the collection was worth $20M, you'd think Leibovitz could have gotten more than $4.75M even given her financial difficulties.

 

[removed account4]

Wouldn't make a difference.

thanks matt ..

It was bought when Liebovitz was at the edge of bankruptcy, so the discussion in the article about the price makes sense.
The seller could have held it and then sold it instead - quite possibly for something quite close to the $20,000,000.
Would you say the same if the gallery turns around and sells it for the $20,000,000?

brink of bankruptcy is an understatement ..


=====
plenty of people go to yard sales, goodwill, and the salvation army, scour ebay for wrong listings
and buys stuff and resell these things for 5-20x paid for.. its called "flipping"
just because this guy is making a donation to a gallery doesn't mean anything. its probably worth exactly
what it is being valued at... AL sold the stuff at bargain basement / fire sale prices and the guy got a deal.

 

[jmlynek]

It was bought when Liebovitz was at the edge of bankruptcy, so the discussion in the article about the price makes sense.
The seller could have held it and then sold it instead - quite possibly for something quite close to the $20,000,000.
Would you say the same if the gallery turns around and sells it for the $20,000,000?

That's the nub of the issue. If it could be sold for $20m, then there would be tax to pay on the profit. By "donating" it at $20m valuation, they get a tax credit higher than the $4.5m purchase price. This amounts to legalized theft from Canadian taxpayers.

 

[Sirius Glass]

Evidently the Canadian government must smell something fishy or they would not have held this up.

 

[removed account4]

That's the nub of the issue. If it could be sold for $20m, then there would be tax to pay on the profit. By "donating" it at $20m valuation, they get a tax credit higher than the $4.5m purchase price. This amounts to legalized theft from Canadian taxpayers.

if the person had the collection appraised by an appraiser and they valued it at $20,000,000 whats the difference ?

 

[George Nova Scotia]

There's a followup article linked at the bottom of the OP. I find the last bit of it the most interesting:

Why a Nova Scotia gallery?
One thing that's perplexed some observers is why the Leibovitz collection would end up at an art gallery in Nova Scotia.

Art lawyer Aaron Milrad said he believes Leibovitz, who had financial problems when she sold the collection, needed money but wanted to avoid flooding the U.S. market with her work.
He also noted it's not just anyone who can come up with $4.75 million US. Generous Canadian tax benefits for donating certified "cultural property" would encourage a Canadian to buy it and donate it to a regional gallery outside the U.S.
"That's significant," Milrad said. "It would go into a museum in Canada — not the U.S. — would not deal with her U.S. market and would not go into the market generally.

"It wasn't a big sale to a dealer or to an auction house that would resell it."

 

[MattKing]

That's the nub of the issue. If it could be sold for $20m, then there would be tax to pay on the profit. By "donating" it at $20m valuation, they get a tax credit higher than the $4.5m purchase price. This amounts to legalized theft from Canadian taxpayers.

I understand where you are coming from, but situations like this highlight a not unexpected consequence of trying to use the tax system to accomplish goals that aren't related to the purpose of income tax.
To save $4.5 million in tax, the donation has to be valued for tax purposes at a value a lot higher than $4.5 million. And the donor/taxpayer has to have a lot of income subject to tax.
So the system usually results in some of the value of the donation coming from the donor, and some coming from the taxpayers.
If the donor turned around and sold the photographs for $15.5 million more than they paid for them, they would only pay tax on half of the gain. So by deciding to donate them instead, they were forgoing a lot more than the tax they would have saved.
The net result of this is that the Art Gallery of Nova Scotia is now the owner of photographs that have a market value somewhere between $2.25 million and $20 million.
Annie Leibovitz no longer owns those photographs. She has only received half of the $4.5 million she expected for them.
The donor is out half of $4.5 million, and may end up having to pay Liebovitz the other half, if the donor ends up being able to claim a larger tax deduction than what is currently being permitted.
And the Canadian taxpayer is out an uncertain amount, but certainly an amount that will end up being far less than the eventually determined value of the Art Gallery of Nova Scotia's new collection of rather special photographs.

 

[removed account4]

Annie Leibovitz no longer owns those photographs

i think the article says AL still owns
the copyrights on all the images in the collection..

 

[jmlynek]

I understand where you are coming from, but situations like this highlight a not unexpected consequence of trying to use the tax system to accomplish goals that aren't related to the purpose of income tax.
To save $4.5 million in tax, the donation has to be valued for tax purposes at a value a lot higher than $4.5 million. And the donor/taxpayer has to have a lot of income subject to tax.
So the system usually results in some of the value of the donation coming from the donor, and some coming from the taxpayers.
If the donor turned around and sold the photographs for $15.5 million more than they paid for them, they would only pay tax on half of the gain. So by deciding to donate them instead, they were forgoing a lot more than the tax they would have saved.
The net result of this is that the Art Gallery of Nova Scotia is now the owner of photographs that have a market value somewhere between $2.25 million and $20 million.
Annie Leibovitz no longer owns those photographs. She has only received half of the $4.5 million she expected for them.
The donor is out half of $4.5 million, and may end up having to pay Liebovitz the other half, if the donor ends up being able to claim a larger tax deduction than what is currently being permitted.
And the Canadian taxpayer is out an uncertain amount, but certainly an amount that will end up being far less than the eventually determined value of the Art Gallery of Nova Scotia's new collection of rather special photographs.

Bear in mind that the donors are the Mintz family, well established accountants. I suggest they knew precisely what they were doing and what benefit they could receive should the $20m valuation be accepted. Their only problem is they know nothing about the photography market and, while Leibovitz has an internationally recognized name, it doesn't necessarily follow that her work is highly prized by collectors.

 

[removed account4]

Bear in mind that the donors are the Mintz family, well established accountants. I suggest they knew precisely what they were doing and what benefit they could receive should the $20m valuation be accepted. Their only problem is they know nothing about the photography market and, while Leibovitz has an internationally recognized name, it doesn't necessarily follow that her work is highly prized by collectors.

but her work IS highly prized by collectors ...
this thread reminds me too much of the sour grapes
people on this forum ( and others ) have because someone
is selling work for $$$ in galleries or getting national or international acclaim.
her work has sold for well over a few thousand dollars an image, she has been photogarphing
for 40+ years and is an established photographer who is being and has been collected for a long time.
i mean, she photographs the royal family, john and yoko and handfulls of others.
it doesn't matter who the family is or that they are accountants ... they bought the collection
which was undervalued and donated it for about what it is probably worth.

 

[Bob Carnie]

Prints are only worth what you can get on the open market, a good friend of mine had 3 Irving Penn worker series prints in Pt Pd, he paid 10K for the four back in the day , he just sold them at
a legitimate auction house in the UK a couple of years back for over 150k . Now that is an investment worth having.
I am not sure what A L work is worth on the resale market and this indeed may be where the perceived value does not come close to the real value. I can see this being a big loophole for those with tax relief needs
helping artists with their short term financial needs.

I seem to remember a tax scheme back in the late 80's where one would make a series of prints of a photographers series and prints were donated .. It worked for awhile as I participated in a photographers
collection... Years later this scheme was banned or stopped. This thread sound very much like the plan I remember with some big exceptions where a Canadian Museum is involved with a celebrity photographer and a third party benefactor.

I will be interested in following this thread as I have many artist collections that I work with.

 

[jmlynek]

but her work IS highly prized by collectors ...
this thread reminds me too much of the sour grapes

You may be right, but a quick review of AL's auction prices are all over the place, it seems to me dependent on the celebrity of the subject. Some were sold for significantly higher than $10k and some much lower. Without knowing the content of the donation, it's hard to say if it is worth $20m or not.

I had to chuckle when I read that the Art Gallery of Nova Scotia's acquisition budget is $15k. I wonder if the gift was refused by other galleries in Canada. In contrast, the Art Gallery of Ontario just acquired 522 Diane Arbus prints. There was information as to whether it was a gift or an outright acquisition.

 

[mgb74]

but her work IS highly prized by collectors ...
this thread reminds me too much of the sour grapes
people on this forum ( and others ) have because someone
is selling work for $$$ in galleries or getting national or international acclaim.
her work has sold for well over a few thousand dollars an image, she has been photogarphing
for 40+ years and is an established photographer who is being and has been collected for a long time.
i mean, she photographs the royal family, john and yoko and handfulls of others.
it doesn't matter who the family is or that they are accountants ... they bought the collection
which was undervalued and donated it for about what it is probably worth.

I don't think anyone here is begrudging AL the 4.5M she may be paid, much less the 2.25M she was paid. But buying the work of a well known artist for 4.5M then immediately claiming a value of 20M does seem a bit fishy. This isn't Antiques Roadshow where someone buys a dusty painting at a garage sale. Even fishier when you consider that they only paid half and only pay the 2nd half if the 20M valuation goes through.

There are a few ways I could see the value going from 4.5M to 20M. The artist dies. Pieces are bought in mass and sold individually. But that's not the case here.

If they bought for 4.5M and claimed 9M, maybe. If they had owned the collection for a while, maybe. But this one is "too cute by half".

 

[removed account4]

I don't think anyone here is begrudging AL the 4.5M she may be paid, much less the 2.25M she was paid. But buying the work of a well known artist for 4.5M then immediately claiming a value of 20M does seem a bit fishy. This isn't Antiques Roadshow where someone buys a dusty painting at a garage sale. Even fishier when you consider that they only paid half and only pay the 2nd half if the 20M valuation goes through.

There are a few ways I could see the value going from 4.5M to 20M. The artist dies. Pieces are bought in mass and sold individually. But that's not the case here.

If they bought for 4.5M and claimed 9M, maybe. If they had owned the collection for a while, maybe. But this one is "too cute by half".

yeah maybe ...
IDK
i have bought things for 35$ and sold them for $400 before
to me at least seemed like the same sort of thing

 

[semi-ambivalent]

There's a followup article linked at the bottom of the OP. I find the last bit of it the most interesting:

Why a Nova Scotia gallery?
One thing that's perplexed some observers is why the Leibovitz collection would end up at an art gallery in Nova Scotia.

Art lawyer Aaron Milrad said he believes Leibovitz, who had financial problems when she sold the collection, needed money but wanted to avoid flooding the U.S. market with her work.
He also noted it's not just anyone who can come up with $4.75 million US. Generous Canadian tax benefits for donating certified "cultural property" would encourage a Canadian to buy it and donate it to a regional gallery outside the U.S.
"That's significant," Milrad said. "It would go into a museum in Canada — not the U.S. — would not deal with her U.S. market and would not go into the market generally.

"It wasn't a big sale to a dealer or to an auction house that would resell it."

Perhaps there's an important gallery there, like in Mabou.

 

[MattKing]

Without knowing the content of the donation, it's hard to say if it is worth $20m or not.

It includes both the iconic John Lennon + Yoko Ono photograph taken hours before Lennon was murdered (and was on the cover of Rolling Stone magazine) as well as the famous blue "Blues Brothers" photograph that also ended up on the cover of Rolling Stone magazine. Both of which would likely fetch a decent price.
Valuation for this sort of stuff isn't simple. In addition, it may be worth far more to someone willing to hold it for a while, specially in comparison to a near bankrupt urgently in need of cash who didn't want to sell it into her home market.

 

[mgb74]

yeah maybe ...
IDK
i have bought things for 35$ and sold them for $400 before
to me at least seemed like the same sort of thing

I have too (at least similar). But not (in my case) at essentially the same point in time and with knowledgeable buyers and sellers.

And, in this case, Mintz did not actually find a willing buyer at 20M, he found 3 appraisers who said they were worth 20M. Those appraisers are (from the little I've read) qualified and legit. But there's still a wide leeway in any appraisal. And there were only 2 days between the purchase and the donation.

Further, he did not really buy the collection for 4.75M. He bought it for half that and agreed to pay AL the other half IF he gets the 20M deduction. That's a red flag to me.

I don't criticize AL. She's rewarded for her work AND her work isn't stuffed away in some private collection. But if I was a Canadian taxpayer, I'd be annoyed.

 

[removed account4]

i was trying to be the devils barrister seeing there are so many h'aters out there who LOVE to beat up on
people who are able to make $$ from their work, and demonize the people who bought the work .. i must admit
i didn't do much reading up on the appraisers or the buyer or gallery and i am as clueless as i seem

that said ...

Further, he did not really buy the collection for 4.75M. He bought it for half that and agreed to pay AL the other half IF he gets the 20M deduction. That's a red flag to me.

yeah you're right, it does sounds kind of weird ...

 

[Pat Erson]

The monetary aspects worry me less than the Titanic-like turn her artistic career has taken since the early 80's.

First there was the RS portraits (Whoopy Goldberg in a milk bath or The Blues Brothers painted... blue, get the concept?) then it went even lower in the 90's/00's with the Vanity Fair covers which gave a new meaning to the word "cheesy".

This coming from a woman who was esily the best PJ of her generation in the 70's. Her coverage of the Stones' 75 tour was impeccable. "How could such talent into utter crap?" is the Q that pops in my head every time I hear the name "Annie Leibovitz"...