Rhodes on On Art Theft, Tax, and Time: Triangulating Ownership Disputes Through the Tax Code

Anne-Marie Rhodes (Loyola-Chicago) has published On Art Theft, Tax, and Time: Triangulating Ownership Disputes Through the Tax Code, 43 San Diego L. Rev. 495 (2006).  Here is the Conclusion:

Six decades after the end of World War II, controversies over the ownership of Nazi-looted art continue to emerge. Time has worked a shift in perceptions and expectations for those controversies; time is no longer an ally for the repose of title. This unsettling of bona fide expectations of title for an innocent buyer raises claims in law and in equity that are equally meritorious to those of the original owners. For a legal system that adjudicates on a case-by-case basis, a claim over ownership of a unique work of art is a zero sum game--one winner, one loser. This harsh reality of uniqueness, set against the competing interests of legitimate market concerns and demands of restorative justice, requires fresh and open inquiry into workable solutions.

Tax is an eminently practical system that affords two possible strategies for those ownership disputes. Using the charitable deduction would generally resolve the dispute by creating an outright public ownership, and hence public benefit and oversight. Using the theft loss deduction, ownership would generally remain private, but the public would nevertheless bear some of the direct financial costs in the ownership shift from one party to the other. The public benefit is admittedly less direct: assistance in dispute resolution, support for private ownership of property, and protection of legitimate market expectations. Perhaps because of this imbalance in public costs and benefits, the availability of the theft loss deduction may not be as straightforward as the charitable deduction. Time, manifested by the IRS's apparent requirement of direct nexus between the thief and the taxpayer, should not act as a stumbling block for the theft loss deduction strategy in the limited context of Nazi-looted art. The language of the Code does not require the nexus and perhaps even recognizes a different timeframe for theft. Case law support for tracing the theft back in time through multiple purchases does exist. Finally, general tax policy concerns do not and should not outweigh the stated United States policy to assist in the restoration of Nazi-looted art. The impossible eternal triangle of thief, owner, and innocent buyer should not find support in tax and time.