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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Jamie Reed: What it's like to stop being an MP

As I approach the whips’ office through the tearoom staircase, a colleague shouts: “It’s Steve McQueen!”

Leaving parliament was never going to be easy. Having entered the Commons at a relatively young age – I was 31 – I knew that a parliamentary existence would be strange, even weird.

I knew that I would never be a “lifer”. A long Commons career followed by a sinecure in the Lords was never for me. This was informed by an aversion not to prolonged public service – the career in the nuclear industry for which I have departed parliament is just as dedicated to public service – but to the culture in which politics in Westminster is undertaken. There is a lot wrong with parliament. I arrived with a healthy contempt for its culture, behaviours and practices; I leave with the knowledge that this contempt was correct.

As a young MP, I felt like Carraway, never like Gatsby. Still, leaving the Commons has taken a huge mental and emotional effort.

21 December 2016

The news of my resignation breaks a few hours early because of a leak. The ­Guardian’s north of England editor, Helen Pidd, brings forward the publication of our interview as a result. Within minutes, my phone explodes. Twitter is unusable. My email server begins to creak. I watch with mounting ­anxiety. Ignoring calls from journalists – many of them friends – I talk instead with my fellow MP John Woodcock.

In politics, you acquire a sixth sense for who would be with you in the trenches at the worst moments. John is such a person. I don’t remember the conversation; I just remember hanging up and crying. I ­shower, dress and head for my in-laws’ farm. When I open the door, there are bottles of champagne on the step. That night, trying to avoid the news, I learn that I was young, popular, brilliant and talented. It’s like being at my own funeral. I drink the champagne.

24 December

I receive a text from Jeremy Corbyn wishing me and my family well. I thank him for his warm words on my resignation.

9 January 2017

I’m en route to the Vogtle nuclear power plant near Atlanta, Georgia, as a guest of NuGen. At Vogtle, Georgia Power is building two AP1000 reactors – the same type as will be built in Copeland. This is a project to which I have devoted 12 years of my life – from writing nuclear policy with the Blair government to making sure that Copeland was chosen as a nuclear new-build site and working to ensure that successive governments maintained the policies underpinning the nuclear renaissance that the Blair-Brown administration began.

Clement Attlee’s Labour government created the nuclear industry, the last Labour government created the nuclear renaissance and I am leaving parliament to return to the nuclear industry – yet Labour will be forced to fight the by-election in my former seat amid allegations of being anti-nuclear. There is nothing new in post-truth politics. Lies have always had the power to seduce.

23 January

It’s my last week in parliament and I’ve made arrangements to see the whips. As I approach the whips’ office through the tearoom staircase, a colleague shouts: “It’s Steve McQueen!”

1 February

I leave my home in Whitehaven for Sellafield at 6.45am. As I drive through the frost, an iridescent light appears on the horizon: a new dawn has broken, has it not?

I collect my pass and enter a whirlwind of meetings, inductions and instructions. Everyone is generous, welcoming and warm. It is at this point that, for the first time, I am faced with irrefutable proof that I am no longer an MP. I am reminded of my parliamentary induction. Chief Whip Hilary Armstrong told us, “Get in the chamber . . . Don’t hide . . . Sink or swim . . .” New Labour was no place for a snowflake. I am reminded, too, of my induction by the House payroll and expenses administrators. A year before the expenses scandal shook Westminster, they informed me: “All we ask is that you don’t buy any antiques . . .”

2 February

As when I entered parliament for the first time, I don’t have a desk. I’m hot-desking, or hot-podding, or hot-cubing. I remind myself that, for now, I remain the Crown steward and bailiff of the Manor of Northstead.

I bump into a colleague from my first time in the nuclear industry. “All right?” he asks.

“Getting there,” I reply.

“You know what they’re saying, don’t you?” he continues.

“No. What?”

“‘The bloody ego has landed.’”

I walk away wondering if it’s now my role in life to remind people of films set in the Second World War.

3 February

It’s a Friday and it strikes me that I have no constituency surgery. Everyone around me has their head down, meeting targets, solving problems. This is a £2bn-a-year operation. There’s no room for Gatsby here. This is why my new role excites me.

The self-immolating stupidity of Brexit, combined with the complex and growing needs of my family, contributed to my decision to leave parliament. Most of all, though, it was the opportunity to work in this organisation and help to drive change within it and my community that caused me to make the switch. My former constituency can and should be at the centre of one of the fastest-growing parts of the UK economy in the years to come. A changing Sellafield and a dynamic industry will be at the heart of this, and time is of the essence.

20 February

The by-election in my former seat draws near and my time as the Crown steward is running out.

I am repeatedly approached by the media for comment and I duck every request. This is for someone else now and I wish my successor well. None of us is indispensable. 

Jamie Reed is Labour MP for Copeland.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit