How do you pay $41m in taxes on a painting which can't be sold?

The value of a painting is how much you can sell it for. But Robert Rauschenberg's "Canyon" is illegal to sell, leaving the Sonnabend estate in a pickle.

When modern art dealer Ileana Sonnabend died in 2007, her family had to sell a heck of a lot of paintings to pay their inheritance tax bill. They eventually valued the total estate at $876m, and had to say goodbye to works by Lichtenstein, Warhol and Twombly to come up with the $471m they owned.

But one of the most important paintings they owned was valued at $0, in a move which has led to the IRS (the Internal Revenue Service, the American tax office) taking them to court for to reclaim a further $41m from them. But this is not tax evasion gone wrong. The painting is quite literally priceless – or perhaps more accurately, valueless.

The work, called Canyon, is by American pop artist Robert Rauschenberg. It is a mixed-medium canvas, featuring "oil, housepaint, pencil, paper, fabric, metal, buttons, nails, cardboard, printed paper, photographs, wood, paint tubes, mirror string, pillow" – and a stuffed bald eagle:

Since trafficking in the bird, a formerly endangered species and national icon, is illegal whether it is dead or alive, the painting cannot be resold. In fact, Sonnabend had to obtain special dispensation to lend the work to museums, and even keep it at all, once federal agents spotted it in 1981.

Now, as any economist knows, there is no such thing as intrinsic value. An item is worth what it can be resold for. It's value certainly isn't what you paid for it, as anyone who bought a full set of Charles and Diana wedding memorabilia will attest to. And neither is it what it would be in a different, hypothetical, situation. If I own an autographed copy of Sticky Fingers​ which will be worth a lot "when (if?) Keith Richards dies", that's all very well, but it's not worth that now.

All of which is to say that if you own a painting which cannot legally be sold, and which can only even be retained through a rarely competent bureaucratic exemption, it is pretty fair to describe it as worth $0. (Although a more accurate valuation would be [sale price in an open market]x[probability of the restrictions being lifted], but if the latter is zero then the whole thing is as well). But the IRS, apparently, don't agree. They claimed to the estate's lawyer that:

There could be a market for the work, for example, a recluse billionaire in China might want to buy it and hide it.

Yesterday, the New York Times threw some light on how they actually reached their valuation:

That figure came from the agency's Art Advisory Panel, which is made up of experts and dealers and meets a few times a year to advise the I.R.S.’s Art Appraisal Services unit. One of its members is Stephanie Barron, the senior curator of 20th-century art at the Los Angeles County Museum of Art, where "Canyon" was exhibited for two years. She said that the group evaluated "Canyon" solely on its artistic value, without reference to any accompanying restrictions or laws.

"The ruling about the eagle is not something the Art Advisory Panel considered," Ms. Barron said, adding that the work’s value is defined by its artistic worth. "It’s a stunning work of art and we all just cringed at the idea of saying that this had zero value. It just didn’t make any sense."

Reuters' economics blogger Felix Salmon, who harbours part time fascination with the art world, doesn't think too highly of Barron for this:

The assumptions baked in to this are both jaw-dropping and entirely unsurprising at the same time. Barron is the senior curator of 20th-century art at Lacma, which puts her at the pinnacle of the non-profit art world, the place where art is supposedly valued just for its own sake and not because it’s worth lots of money. And yet, faced with a literally priceless work of art, Barron and her fellow panelists “just cringed” at ratifying precisely that concept. If a work has great artistic value, in Barron’s view, it must have great financial value as well. And, conversely, if a work has no financial value, then it cannot have artistic value.

Salmon is right that there is something peculiarly specific to the art world in this error, and that's what he focuses on for the rest of his very good piece. But it's also representative of a more widespread form of economic illiteracy. Take, for example, arguments around the introduction of a wealth tax.

The idea is that since a) inequalities in wealth are far greater than inequalities in income, and b) wealth is a better indicator of "richness" than income (people rarely have temporary spikes in wealth, for instance), then we ought to be collecting a tax on wealth (of, say, half a per cent of total wealth over £1m per year).

This is all good, but the problem comes when people start comparing liquid and illiquid assets. Much – most – of the wealth of the richest Britons is tied up in land and property. Unless Inland Revenue want to start collecting percentages of houses (and it's unclear what they would do if they seized, say, your front porch) then some people are going to have to start selling those homes, liquidating their assents.

When there's a glut of properties on sale, the value falls. If the value falls, the value of what can be taxed correspondingly falls. There is no such thing as the "true" value of someone's wealth which the Revenue can address, and if they do, they end up with cock-ups like the IRS's. Let that be a lesson to them.

A noble, majestic bald eagle, indirectly responsible for a $41m tax bill. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour and Tory MPs fear the political forces Brexit could unleash

The Liberal Democrats and Ukip are offering Remainers and Leavers alternative homes. 

Two years ago this month, MPs felt the tremors of a political earthquake. The 45 per cent of Scots who voted for independence had driven a surge in SNP support. Five months later, in the general election, old loyalties dissolved. Forty Scottish Labour MPs and ten Lib Dems were swept away.

The referendum realigned Scottish politics along nationalist and unionist lines. The Conservatives, once considered irrelevant, acquired new purpose as the SNP’s antithesis. Labour was pushed to the margins.

At Westminster on 5 December, MPs asked whether another tectonic shift was under way. That afternoon, Sarah Olney, the Liberal Democrat who overturned Zac Goldsmith’s 23,015 majority in the Richmond Park by-election, was sworn in to parliament. Like the Scottish Conservatives, the Lib Dems had been the subject of derision. But by adopting a resolutely anti-Brexit stance they ended their political exile. In a seat where 72 per cent of people voted Remain, the pro-Leave Goldsmith was caught on the wrong side of his constituents.

Three days before Olney’s election, the new Ukip leader, Paul Nuttall, declared it was his party’s mission to “replace Labour”. In a mirror image of the Lib Dems’ strategy, the Liverpudlian aims to unseat pro-Remain MPs in pro-Leave constituencies.

There is reason for caution in predicting Scottish-style ruptures. Brexit is a less defining issue than independence (turnout was 72.2 per cent in the former vote and 84.6 per cent in the latter). The SNP has formed a devolved government since 2007, allowing it to claim the mantle of incumbency as well as insurgency. The Liberal Democrats, punished for coalition in 2015, and Ukip, with a sole MP, cannot replicate this feat.

Though it felt churlish to say so following Olney’s triumph, by-elections are a historically poor indicator of general election results. In 2013 the Lib Dems hailed their victory in Eastleigh as proof that most of their 59 MPs could defy electoral gravity. Only eight did (Eastleigh’s was not among them). In 2014, after two Ukip by-election victories, excitable commentary suggested that the party could win as many as 30 seats. It won one. Supporters of both parties defected to the Conservatives when faced with the prospect of Labour taking power.

However, there are plausible reasons why the next election could upset these precedents. Brexit is a process, not an event. It will define UK politics for a decade or more. The next election could become a de facto second referendum. The Liberal Democrats will speak for aggrieved Remainers, Ukip for “betrayed” Leavers. Both Conservative and Labour MPs fear an electoral price.

“Remainers feel that they’ve been sidelined, pushed to one side, made to feel small,” Anna Soubry, the former Tory business minister, told me. She lamented that Theresa May’s “wonderful” words when she entered Downing Street were “undermined” by her “hard Brexit” conference speech. Soubry warned of the next election: “When 2020 comes along, those aged 15, 16, 17 now will be able to vote. A large number feel that they have had their future stolen by an older generation.”

To some, the potential for Lib Dem gains appears limited. Only two of their top 30 Tory targets (Hazel Grove and Lewes) are Remain seats with Leave MPs. But Conservatives worry that the Lib Dems could triumph by forging a pro-EU coalition of Labour and Green supporters. Under first-past-the-post, as the SNP can testify, seats can be won with significantly less than 50 per cent of the vote.

By far the greatest anxiety, however, is felt among Labour MPs. “We face a tougher electoral map than at any other time in our history,” Jonathan Reynolds, the shadow Treasury minister, told me. The party remains marooned in Scotland and fears a three-way squeeze in England between the Tories, Ukip and the Lib Dems. Labour’s poll ratings, which last month averaged 29.5 per cent, were described as “dire” by its general election co-ordinator, Jon Trickett, at an NEC meeting on 22 November. Jeremy Corbyn’s ally warned that the party would have to “defend some seats” at the next election, rather than focusing on targets alone.

MPs speak of a gnawing sense that Labour is the party of the past. In a less tribalistic age, when voters are no longer defined by their work, it risks political redundancy. Across Europe, social democracy appears in structural, not merely cyclical, decline.

Rather than pitching solely to Remain or Leave voters, Corbyn’s team intend to target both through a vision of “the kind of country we want to live in”, and a focus on jobs, living standards and the economy (though they do not rule out supporting a second referendum). Others, feeling the electoral ground shift beneath them, advocate more radical action. After Richmond, Clive Lewis, the shadow business secretary, reaffirmed his call for a “progressive alliance” under which Labour would not stand candidates in certain seats. Reynolds, a fellow pluralist, told me: “We can’t pretend that people have the class allegiances of the past.”

Another group, in the words of one MP, will “follow the Lib Dem playbook, treat the party as a franchise and run ultra-local campaigns”. Leaflets will be free of references to Corbyn and national policy. “You’ve got to cut the mother ship adrift and row yourself to safety.”

At the very moment that the UK is preparing to leave the EU, its politics has never appeared more European. Britain’s fractured opposition of socialists, nationalists, liberals and greens has long been common on the continent. Amid this tumult, Conservatives hope that Theresa May will predominate in the manner of Germany’s Angela Merkel. In the absence of a Labour recovery, they anticipate at least another decade in government. 

George Eaton is political editor of the New Statesman.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump