Love v. Comm'r of Internal Revenue (In re Estate of Smith)
| Decision Date | 23 February 1972 |
| Docket Number | Docket No. 4251-69. |
| Citation | 57 T.C. 650 |
| Parties | ESTATE OF DAVID SMITH, DECEASED, IRA M. LOWE, CLEMENT GREENBERG, ROBERT MOTHERWELL, COEXECUTORS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Ira M. Lowe, for the petitioner.
St. Clair Reeves, for the respondent.
Held, the fair market value of 425 sculptures at the date of death of decedent was $2,700,000.
Further, held, only those commissions applicable to sales of sculptures necessary to raise cash to pay the debts of decedent, taxes, and the expenses of administration are deductible; no further sales were necessary to preserve the estate or to effect distribution. Sec. 2053(a), I.R.C. 1954.
Respondent determined a deficiency of $2,444,629.17 in the Federal estate tax of the Estate of David Smith (hereinafter referred to as Smith or decedent).
Several issues raised in the petition have been either resolved by agreement of the parties or abandoned by petitioner. The following issues remain for decision: (1) The fair market value of 425 sculptures created by Smith and in his possession at the time of his death; and (2) the deductibility of certain commissions incurred and paid by petitioner in the course of selling some of the aforementioned sculptures.
Some of the facts have been stipulated and, together with the exhibits attached thereto, are incorporated herein by this reference.
David Smith died from injuries sustained in an automobile accident on May 23, 1965. He was a citizen of the United States and a resident of Bolton Landing, N.Y., at the time of his death. Robert Motherwell, Clement Greenberg, and Ira M. Lowe qualified as coexecutors of the decedent's estate. A Federal estate tax return was filed on August 24, 1966, with the district director of internal revenue in Albany, N.Y.; the property included therein was valued as of the date of decedent's death. A deficiency was agreed upon and paid on July 10, 1968. On August 7, 1969, respondent issued the notice of deficiency herein.
At his death, Smith owned 425 pieces of sculpture created during various periods of his life. Of these sculptures, 291 were located at Bolton Landing, N.Y.
Smith began making metal sculptures in 1937. Most of his work is of the abstract, nonrepresentational variety and fashioned out of welded steel and other metals, a technique which Smith pioneered. The quality of Smith's sculptures varied according to the period in his life during which they were created. From 1940 to 1963, Smith was represented by two art galleries who endeavored to sell his works, albeit without much success. Between 1940 and 1956, Smith was represented by the Willard Gallery, during which time 53 of his works were sold for $33,432.50 at prices ranging from $40 to $3,213. From 1957 until 1963, he was represented by the Otto Gerson Gallery, during which time 17 pieces were sold for $76,148.
On or about June 2, 1963, Smith and Marlborough-Gerson Galleries (Marlborough) entered into an agreement which provided in part, as follows:
The following shall constitute our agreement with respect to the sale by us as sculpture, drawings and graphics created by you (hereinafter referred to as ‘your work’):
1. During the period of 5 years commencing on the date hereof, we shall have the exclusive right, in any part of the world, to offer for sale and to authorize others to offer for sale all items of your work owned by you. You shall initially deliver each such item of your work to us at such location as we shall indicate.
2. During such period of 5 years, we shall also have the exclusive right to arrange and to authorize others to arrange the publication and/or sale, in any part of the world, of books and catalogues containing illustrated reproductions of your work.
3. During such period of 5 years, we shall arrange for exhibitions of your work in New York, London, Rome and such other places as you and we shall jointly determine. We shall be responsible for all of the expenses of such exhibitions (including advertising and catalogue costs) other than insurance and shall bear the entire cost of storing all items of your work delivered to us pursuant to this agreement.
4. You have furnished us with photographs of each item of your work owned by you on the date hereof. The price at which we shall offer each such item for sale shall not be less than the price set forth on the back of such photograph. We shall agree with you as to the minimum sale prices of those items of your work created in the future. Minimum prices may be changed from time to time in such manner as you and we shall jointly agree.
6. Upon the sale by us of any item of your work, we shall reimburse ourselves from the actual net proceeds for any initial shipping cost and insurance cost advanced to you with respect to such item. In addition, as compensation for our services, we shall retain 1/3rd of the balance of such net proceeds. The remaining 2/3rds of such balance, less any amounts due to us hereunder, shall be paid to you in United States dollars on a quarterly basis.
8. This agreement shall be construed in accordance with the laws of the State of New York and shall be binding upon and inure to the benefit of your and our respective executors, administrators, successors and assigns.
This contract was renewed by Smith's estate on June 3, 1968.
Smith's sculptures were mostly sold at retail to museums and individual collectors during his lifetime.
Between June 2, 1963, and Smith's death on May 23, 1965, Marlborough's efforts (which included an exhibition of 29 selected works at Marlborough's Gallery in New York in October of 1964) resulted in the following sales:
+--------------------------------------------------------+
¦ ¦ ¦ ¦ ¦ ¦
+-------------+-----------+-----------+-----------+------¦
¦Date ¦Pieces sold¦Total sales¦Commissions¦Artist¦
+-------------+-----------+-----------+-----------+------¦
¦ ¦ ¦price ¦ ¦ ¦
+-------------+-----------+-----------+-----------+------¦
¦ ¦ ¦ ¦ ¦ ¦
+-------------+-----------+-----------+-----------+------¦
¦ ¦ ¦ ¦ ¦ ¦
+-------------+-----------+-----------+-----------+------¦
¦Nov. 20, 1963¦1 ¦$6,000 ¦$2,000 ¦$4,000¦
+-------------+-----------+-----------+-----------+------¦
¦June 29, 1964¦1 ¦14,000 ¦4,666 ¦9,334 ¦
+-------------+-----------+-----------+-----------+------¦
¦Nov. 12, 1964¦1 ¦40,000 ¦13,333 ¦26,667¦
+-------------+-----------+-----------+-----------+------¦
¦Nov. 14, 1964¦1 ¦8,500 ¦2,833 ¦5,667 ¦
+-------------+-----------+-----------+-----------+------¦
¦Jan. 7, 1965 ¦1 ¦40,000 ¦13,333 ¦26,667¦
+-------------+-----------+-----------+-----------+------¦
¦ ¦ ¦ ¦ ¦ ¦
+--------------------------------------------------------+
During the 2 years following Smith's death, Marlborough effected the following sales, presented below in summary fashion:
+--------------------------------------------------------------+
¦ ¦ ¦ ¦ ¦ ¦
+---------------+----------+-----------+-----------+-----------¦
¦Period ¦Number of ¦Total sales¦Commissions¦Artist ¦
+---------------+----------+-----------+-----------+-----------¦
¦ ¦works sold¦price ¦ ¦ ¦
+---------------+----------+-----------+-----------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+---------------+----------+-----------+-----------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+---------------+----------+-----------+-----------+-----------¦
¦5/23/65—5/23/66¦16 ¦$269,383.00¦$89,795 ¦$179,588.00¦
+---------------+----------+-----------+-----------+-----------¦
¦5/24/66—5/31/67¦52 ¦718,951.67 ¦240,264 ¦478,687.67 ¦
+---------------+----------+-----------+-----------+-----------¦
¦ ¦ ¦ ¦ ¦ ¦
+--------------------------------------------------------------+
During his lifetime and at the time of his death, several factors militated against Smith's becoming a commercially successful artist. First, abstract sculptures attract far fewer buyers than do paintings, partly because the latter more easily fit into the decor of a buyer's household or of a museum. While Smith received mixed critical acclaim from his contemporaries and art critics, his work was not particularly appealing to the general public upon whom an artist must rely for the great bulk of his sales. Secondly, the size of his works (particularly those of the ‘Cubi’ series, his most highly regarded series of sculptures), required a prospective buyer to have a great deal of space available for installation in order to properly exhibit them. Indeed, 185 of the 425 works in Smith's possession at his death were over 7 feet tall and comprised 80 percent of the total retail selling prices estimated by Smith's executors. Finally, SmithS works were priced relatively high, and it was generally acknowledged in the art world that the lowering of an artist's prices signified a lack of confidence in the quality of the work.
Toward the end of Smith's life, Smith began to receive critical recognition of his work and honors commensurate with his status as one of the leading American abstract sculptors. He was appointed to the National Council of Art in 1964, the first such artist to receive this honor; he also participated in the 1962 Festival of Two Worlds in Spoleto, Italy, a guest of the Italian Government and American composer, Giant Carlo Menotti, as well as being awarded a major prize at the 1959 Sao Paulo Biennial of Modern Art. Upon his death, several national...
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