Peterson v. Commissioner

MEMORANDUM FINDINGS OF FACT AND OPINION

WILBUR, Judge: Respondent determined deficiencies in petitioner's Federal income taxes as follows:

The sole issue for decision is the valuation of various artworks which were the subject of charitable contributions.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Petitioner resided in Kenosha, Wisconsin at the time of filing the petition herein.

In the early 1960's, petitioner began to collect ivory carvings. In 1967 or 1968, petitioner purchased five ivory carvings at an antique store in Bar Harbor, Maine, and a porcelain piece at a store in New York City. Petitioner is unable to establish a specific purchase price allocable to the items in dispute herein.

In 1972-1974, petitioner donated the five ivory carvings to Carthage College, Kenosha, Wisconsin, and the porcelain piece to the Kenosha Public Museum. *307 The following schedule sets out the date of contribution of each item in dispute, the amount claimed by petitioner in his return as the fair market value of the item, the amount allowed by respondent, and the valuation of each item by respondent's expert John LaMarre (LaMarre) and petitioner's expert, Edward Tripp, (Tripp).

Tripp was an experienced dealer in ivory carvings while LaMarre was an experienced appraiser. The relevant factors in valuing such artworks include the quality of the carving, its age, size, and present condition. Tripp based his valuation on the quality of the work and other factors relating thereto and whether such pieces were readily available on the market. By contrast, LaMarre*308 relied on the sale prices of comparables at auctions and which were described and sometimes illustrated in auction catalogs. However, the information provided in the catalog relating to such artworks is somewhat skimpy and often inaccurate. The comparables he selected were generally not similar to the piece in question and he did not personally inspect the comparables.

Petitioner relied on John Luedtke's appraisal of the various items with respect to the amount of charitable contribution claimed on his return. Respondent disputed the value of the items claimed on his returns on the advice of its employee, Jack Hyde (Hyde). Hyde was not an expert in valuing such items and he formulated his opinion after consulting with an expert and reviewing catalogs with information on comparable sales. He did not see the pieces when he valued them but was simply working from photographs. Based upon close examination by the Court in conjunction with the relevant testimony relating thereto, a description of each of the items in dispute is set out below.

1. Ivroy Carving--Boat Scene

*309 2. Ivory Carving--Three Immortals

3. Ivory Carving--Figure on Horseback

4. Ivory Carving--Figure on Deer

*310 5. Ivory Carving--Phoenix (2)

6. Porcelain--Marriage Coach of Napoleon

OPINION

The issue for decision is the fair market value of various artworks when they were donated to charitable organizations. ¹ The works involved are five ivory carvings which*311 petitioner donated to Carthage College, Kenosha, Wisconsin, and one porcelain object donated to the Kenosha Public Museum.

The regulations define fair market value as the price a willing buyer would pay to a willing seller, neither being under any compulsion to buy or sell and both having a reasdonable knowledge of relevant facts. Section 1.170A-1(c)(1), Income Tax Regs.Mauldin v. Commissioner,60 T.C. 749 (1973); Kaplan v. Commissioner,43 T.C. 663 (1965).

Petitioner relies principally on the expert testimony of Edward J. Tripp (hereafter Tripp) in support of his claimed valuation of these artworks. ² Tripp, an experienced dealer in ivories, offered his valuation of the five ivory carvings based upon a careful examination of the pieces and his wide*312 knowledge of the market value for such works. In contrast, respondent's chief expert witness, John LaMarre (hereafter LaMarre) valued the items by using the sales prices of "comparables" which were listed, described and sometimes illustrated in Sotheby Parke Bernet catalogs and sold at auctions in New York and Los Angeles. While their methods of valuation differed dramatically, both experts essentially agreed that relevant factors in valuing such works included the quality of the carving, its age, size and present condition. We have accordingly utilized these criteria in valuing each individual piece before us.

Tripp's valuation of the items was generally 10 to 20 times greater than LaMarre's valuation. This wide gap in their valuation and techniques reflect their respective views regarding the uniqueness*313 of the items. LaMarre generally attempted to demonstrate that the items were readily available in the current market at a reasonable price by comparing them to auction sales of items that, in his view, were comparable. Tripp maintained, however, that the items were unique both in their quality and the subject matter depicted and could therefore command a higher figure in the current market.

In our view, Tripp was more knowledgeable than LaMarre regarding the market value of the ivory carvings. He was an articulate witness who carefully and intelligently analyzed the items in question. In contrast, LaMarre's testimony was replete with inconsistencies in addition to other serious shortcomings. First, his comparables were generally not at all comparable. It is clear from his testimony that LaMarre had never seen the actual carvings that he considered comparable at any of the auctions either prior to or at the sale. In fact, some of the "comparables" were not even illustrated in the catalog. Additionally, while LaMarre testified on direct examination that he generally considered a catalog description to be accurate, he later conceded that such information is somewhat skimpy, is*314 sometimes inaccurate, and that he would not make an important purchase solely on the basis of catalog information. Without adequate knowledge of the quality of the works in the catalog, it is virtually impossible to descern a piece of comparable quality. ³

In sum, while comparable sales are evidence of value in the art field (see Mathias v. Commissioner,50 T.C. 994, 999 (1968)), we are unconvinced that the method was properly utilized herein.

The testimony of Jack Hyde (Hyde), an Internal Revenue Service employee who initially valued the carving for the respondent, was not helpful. Hyde testified that he had not even seen the carvings when he prepared his report but was simply working from small photographs. Moreover, Hyde readily conceded that he is not an expert in the field. Similarly, the testimony of John Luedtke (Luedtke), a witness for petitioner who valued the works for petitioner prior to the proceeding, must be discounted since he did not demonstrate an intimate knowledge of the current market values for such artworks.

In addition to an analysis of the expert testimony,*315 there are other factors that bear on the valuation of the artworks. First, it seems very unusual that such valuable artworks would have been purchased in a lot purchase at a souvenir and antique shop in Bar Harbor, Maine.It is also surprising that petitioner had no bill of sale for the aggregate purchase or for the individual items purchased. While the prices undoubtedly appreciated substantially from the date of purchase (1967-1968) until the date of contribution, these absences in the record weigh against petitioner. Additionally, there is no evidence that petitioner insured the art works or took any special precautions to preclude their loss due to theft or fire.

With these considerations in mind, we turn to the valuation of the six items at issue.

1. Boat Scene

Tripp based his value on the fine quality of the carving and its excellent condition. His testimony reflects that the tusk was very thick and that the carving was all one piece with the exception of two standing figures which may have been added on at a later date. LaMarre, *316 however, testified that the piece was common and easily replaceable and that he had seen similar items at retails shops on Fifth Avenue in New York City. One of his "comparables" described in a Sotheby Parke Bernet catalog but not illustrated, was sold at an auction in Los Angeles on November 11, 1978 for $300. But LaMarre relied solely on the catalog description. The comparable was not illustrated and LaMarre conceded that he did not remember seeing the comparable at the auction in Los Angeles. ⁴

In addition, LaMarre acknowledged at trial that the "comparables" listed in his earlier report were essentially the same as a carving of a bridge of elephants which was on display in the courtroom (but which was not one of the items in dispute). However, this carving was a fairly standard item which was machine produced and mounted on a wooden, not ivory, base. Based*317 on the Court's observation of the piece in light of the criteria generally agreed upon, the item was plainly of lesser quality and value than the items in dispute. Thus, LaMarre's testimony must be discounted. Based on the testimony as a whole and the consideration set out above, we conclude that the carving had a value of $6,500 at the time petitioner donated it to Carthage College.

2. Three Immortals

Tripp again based his valuation on his view that the item was unique and its quality exceptional. In his opinion, the figure was carved by hand from a very heavy piece of solid ivory. He testified that the Chinese poem inscribed on the back of the piece indicated that it was an older piece not readily available on the current market. Respondent maintains however that LaMarre's testimony regarding comparable pieces indicates that there is no market for such a piece in the range that petitioner claimed. LaMarre testified that a Chinese carving described and illustrated in a Sotheby Parke Bernet catalog and which sold for $1,300 was of "comparable*318 quality." Aside from the fact that the comparable does not look at all similar to the item at issue, it is impossible to discern quality from an illustration. For instance, while Tripp testified that the item at issue was carved from a single piece of ivory, it is impossible to detect whether the "comparable" illustrated was produced from one piece or was in effect a patchwork job. Even assuming similar quality, we note that the carving of the three immortals was much taller and wider than that pictured in the catalog.

Furthermore, LaMarre stated that the comparable and the carving of the three immortals were produced at approximately the same time. However, upon being informed that the date of the comparable as described in the catalog was different, he agreed with Tripp that such descriptions were sometimes inaccurate and that he generally did not believe them. Finally, while LaMarre noted that the carving of the three immortals was "superior" to the carving of the boat scene, he valued the former at only $200 more than the latter.

Considering the evidence as a whole, we conclude that the carving of the three immortals had a value of $4,500 at the time of contribution.

*319 3. Figure on Horseback

Typically, the experts are in sharp disagreement as to the fair market value of this item. Both agree that the carving describes an old Chinese legend.Tripp testified that the myth was not well known and he had never seen a piece like it. Consequently, he claims that the piece was unique and quite valuable. He also testified that the quality of the piece was exceptional. Although he carefully examined the piece and has had extensive experience in valuing such pieces, Tripp failed to state how he arrived at his valuation figure. LaMarre presented two comparables which were sold at Sotheby Parke Bernet auctions for $3,000 and $1,300. One comparable, however, was similar only in that it depicted Chinese figures and the other solely because a horse was pictured. Based on both Tripp's and LaMarre's testimony, the carving in question was clearly more elaborate and detailed than the comparables introduced. However, as LaMarre pointed out, there was some repair to the piece that diminished its value below the $18,000*320 assigned to it by Tripp. Tripp conceded that there was repair and at trial stated that he did not notice it at the time he originally inspected the piece. Petitioner presented no information as to when the repairs were made. Based on LaMarre's testimony that they had been made sometime earlier which we found accurate and convincing on this point, we believe the piece was damaged and repaired when donated.

We therefore find that the fair market value of the piece was $8,000 at the time of donation.

4. Figure on Deer

The figure depicts, among other things, Shou Lao, the Chinese god of longevity, sitting on a deer. The piece was quite large and as Tripp pointed out, the carving exquisite. It was undamaged and in excellent condition. Tripp demonstrated the cross-hatch pattern discernible on the outer layers of the base, thus indicating that the figure was carved from one block of ivory. LaMarre disputed this analysis, claiming that the base consisted of several pieces due to the various breaks in the ivory. Such nuances would significantly*321 affect the value. We believe the testimony of Tripp and feel that LaMarre was mistaken on this point. Additionally, there was some dispute as to whether the piece was Chinese or Japanese in origin but we were not convincingly shown how such fact would have an impact on value.

LaMarre's "comparable" which he again did not actually examine affords no adequate basis for comparison. The setting seems totally different and even LaMarre felt that the item in issue was of Japanese origin while that illustrated in the catalog was of Chinese origin. This comparable was evidently selected since it also depicts Shou Lao, the Chinese god of longevity. But, absent a physical examination of the comparable, we refuse to adopt the "same god-same value" view apparently espoused by LaMarre.

In sum, the large disparity in the valuation provided by the experts is obviously due to their differences both as to the uniqueness of the piece and its quality. Considering the evidence as a whole and particularly the testimony of Tripp, we conclude that the carving had a value of $20,000 at the time of donation.

5. Phoenix Birds

*322 Both Tripp and LaMarre agree that the figure of the phoenix birds is a common motif. Tripp described the quality of the carving as excellent. He noted that the piece was not filled as were some contemporary carvings but was produced from solid ivory. The lack of tool marks on the birds support Tripp's analysis. However, Tripp was not convincing to the extent he made any effort to even describe the pieces as unique. In addition, there appeared to be some damage to the comb on one of the bird's heads.

LaMarre's comparables were not illustrated. He did testified that the figures were painted in order to conceal a poorly grained ivory. On this point, petitioner's expert offered no rebuttal. However, despite the apparent flaws, we feel that the quality and workmanship was above that attributed by respondent's expert, and, using our best judgment, hold that the carving of the phoenix birds had a fair market value of $3,500 on the date it was contributed.

6. Porcelain Coach

Petitioner's expert who valued this piece, John Luedtke, based his valuation*323 on the fact that it was manufactured by a reputable German manufacturer (Kister). In addition, his valuation was influenced by petitioner's estimated purchase price ($5,000) and the market for similar items. However, petitioner did not furnish us with a bill of sale for this item and his testimony relating to this purchase was vague and unconvincing.

Luedtke conceded that a similar coach depicting the marriage coach of Napoleon with similar dimensions was sold at a Milwaukee gallery for $1,650. Luedtke testified that he did not believe that Kenosha artwork was higher-priced than in Milwaukee.

LaMarre testified quite convincingly that the piece was neither unique nor of superior quality. He noted that part of the coach was transfer printed, not painted, and that this diminished its value. In his view, the style of the four horses was identical. His testimony comports to a large extent with the Court's view of this piece. We find that the fair market value of the porcelain coach was $1,000 at the time of contribution.

Decision will be entered under Rule 155.