The Baroness' Income Tax

The spreading practice of using art to get dubious tax deductions received a significant legal setback last week.

Gifts of art to museums and schools are usually legitimate charitable deductions, but the practice is open to abuse. A collector more interested in his taxes than in public beneficence can get some "expert" to put a high evaluation (citing the rising art market) on a cheaply obtained painting, then give it away and claim a big write-off. The Bureau of Internal Revenue has shied away from contesting these appraisals, feeling incompetent to judge art, but reputable connoisseurs and galleries have grown uneasy for the reputation of art dealers as a whole. It took the help of Manhattan's watchdog Art Dealers Association of America for the Revenue Bureau to win a specific victory that could mark the beginning of an effective crackdown.

The bureau's target was a woman who has long been famous in the U.S. art world: Alsatian-born Baroness Hilla Rebay, 72, the woman who first persuaded the late Solomon R. Guggenheim to buy his famous Kandinskys, directed his museum of nonobjective painting from its opening in 1939 to 1952, and is still a trustee of the Frank Lloyd Wright-designed Guggenheim Museum. The baroness is also a painter, and between 1955 and 1959 she donated eight of her own paintings to three schools, Arizona State College, Milwaukee-Downer College and Emma Willard School in Troy, N.Y. The market value claimed on her tax returns ranged from $1,000 for an abstraction called Scherzo to $30,000 each for the three parts of her triptych Con Moto, Andante and Allegro. Last month, Internal Revenue challenged the evaluations in the U.S. Tax Court in Manhattan.

The Government called three experts: Edith Halpert of the Downtown Gallery, Daniel Johnson of the Willard Gallery and Eugene Thaw of E. V. Thaw & Co. The most generous evaluation that they placed on any of the baroness' paintings was $3,000. The baroness had her own expert: Alexander Kirkland, who runs a gallery in Palm Beach, Fla., where he had been exhibiting the baroness' work (without making a single sale). He placed the value of the triptych paintings at $28,000 each.

Judge Arnold Raum's decision upheld the bureau's evaluation of the eight paintings at $9,300 instead of the $169,000 claimed. The baroness, whose income, mostly from dividends, is around $140,000 a year, was unimpressed: "I have nothing to do with the whole thing," she said. "What my tax lawyers do doesn't concern me in the least."

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