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February 26, 2015 at 01:14 PM
Issues surrounding property held in a private holding company have flared up in a new lawsuit filed against the IRS. The case, which might have important repercussions for estate planners nationwide, highlights some of the pitfalls of owning highly valuable pieces of art.
The high-profile suit involves artworks by such renowned artists as Paul Cezanne, Pablo Picasso and Vincent Van Gogh. The case also concerns the estate of Joe Allbritton, who was the owner of banks and media properties, including the political website Politico.
Allbritton’s family owned a private holding company named Perpetual Corp., which held Allbritton Communications Corp. In 1999 and 2001, Perpetual purchased a 95 percent interest in several pieces of art from Allbritton, in exchange for debts that he owed to the company. Those sales were fully disclosed on the Allbrittons’ tax return.
The IRS later claimed that Perpetual made a constructive distribution of several of the artworks to Joe Allbritton between 2005 and 2008. In 2013, Allbritton’s widow received a “notice of deficiency,” claiming that 33 works of art had been distributed to Joe Allbritton, who died in 2012. The total value of the artwork transferred, according to the IRS, was $139 million.
Because of those distributions and supposed taxable dividends, the IRS presented Barbara Allbritton with a tax bill for $40.6 million in 2013. Mrs. Allbritton paid that bill “under protest,” she says, and now she has filed suit in the U.S. District Court for the Southern District of Texas in hopes of recouping that money.
