Written by William E. Keenen

Under U.S. law, a tax generally is imposed whenever one individual gratuitously transfers an interest in property to another. This tax is computed on the value of the property interest transferred, whether during one’s life (to which the gift tax applies) or at one’s death (to which the estate tax applies). In some instances, a discount in the value of an interest in property may be taken by a donor or the executor of an estate when filing a gift or estate tax return, as the case may be. The 5th Circuit Court of Appeals recently decided Estate of Elkins v. Commissioner [767 F.3d 443 (5th Cir. 2014)] in which the court considered discounts to establish the value of fractional interests in artwork.

When James Elkins, son of the founding partner of the Vinson and Elkins law firm, died, he owned fractional interests in 64 very valuable works of art. Mr. Elkins and his wife had accumulated the artwork over the course of their marriage, which constituted the couple’s community property under the laws of Texas, where they resided during their marriage. Prior to Mr. Elkins’ death, the artwork had been maintained in his home, his office, the homes and offices of his children as well as on display in various public places. Mr. and Mrs. Elkins each settled a so-called grantor retained income trust (a GRIT) to which each of them transferred his or her respective interests in three works of art, which the Tax Court termed the “GRIT Art”. The other 61 pieces, which, for the reasons discussed next, were referred to by the Tax Court as the “Disclaimer Art”, were owned outright by Mr. and Mrs. Elkins.


Continue Reading Determining the IRS’s Fair Share: Considering Discounts to Establish the Value of Interests in Artwork for U.S. Transfer Tax Purposes

Written by Hugo López Coll, Luis Torres and Guillermo Miranda*

It is impossible not to be deeply moved by Diego Rivera’s Vendedora de Alcatraces, Frida Kahlo’s incredible self-portraits, or José Clemente Orozco’s El hombre en llamas, all of which have become cornerstones of Mexican identity and cultural heritage. However, what people may not realize is that Mexico strictly regulates the exportation of such artworks.

Mexico has established a series of laws and regulations concerning the country’s cultural, artistic and anthropological heritage, including explicit references in the Mexican Federal Constitution, specialized laws and regulations, as well as standards published by institutes devoted to protect such heritage, like the National Institute of Anthropology and History (INAH) and the National Institute of Fine Arts (INBA).

To protect the country’s cultural heritage (including these 20th century masterpieces), Mexican presidents have issued a number of decrees over the last several decades, designating all the works of José Clemente Orozco, Diego Rivera, José María Velasco, and Gerardo Murillo Coronado (known as Dr. Atl) as “historical monuments.” Under Mexican law, historical monuments are regulated and maintained by the INAH. A designation as a historical monument carries obligations even for private owners of these works, requiring them to maintain specific levels of care, maintenance, and restoration of the works. A designation as a historical monument also requires that the works be retained in Mexico.
Continue Reading In love with Diego or Frida? A brief look at Mexican art regulations