Thursday, July 29, 2010
Rick Norsigian made one of the best yard sale deals ever. Ten years ago, the California painter bought two boxes of photographic plates for $45, after he bargained the owner down from $75. Today, they are worth an estimated $200 million.
So what was in those boxes? Sixty-five glass negatives made by Ansel Adams, the iconic American nature photographer, CNN reported. Experts thought the negatives were lost in a 1937 darkroom fire that destroyed 5,000 plates.
Treas. Reg. § 1.61-14(a) provides that “[t]reasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession.” The leading case is Cesarini v. United States, 296 F.Supp. 3 (D. Ohio 1969), in which a husband and wife who purchased a used piano at a 1957 auction for $15 in 1957 and discovered $4,467 in cash in the piano in 1964 were required to report the $4,467 in income in 1964. But Mr. Norsigian's case is distinguishable and he would not have to report the $200 million of gain (less his $45 basis) until he sells the photographic plates. See Joseph Bankman, Thomas D. Griffith & Katherine Pratt, Federal Income Tax: Examples and Explanations (Aspen, 5th ed. 2008):
[T]he circumstances in Cesarini should be distinguished from situations in which a taxpayer discovers that something that he had bought was worth more than he originally paid for it. In the latter situation the taxpayer would not have an income inclusion until the property was sold or exchanged -- in other words, until the gain was "realized." ...
In year one, Ellie pays $300 for an antique dresser at an estate sale. ... [I]n year three, ... Ellie discovers that the dresser is a rare antique, worth $10,000. Later, in year five, Ellie sells the dresser for $12,000. ...
[Answer: $11,700 of gain in year five.]
- J. Gordon Hylton, The “Who Owns the Baseball” Issue Just Will Not Go Away (Oct. 8, 2009)
- Ball Busters: How the IRS Should Tax Record-Setting Baseballs and Other Found Property Under the Treasure Trove Regulation, 33 Vt. L. Rev. 43 (2008)
- The Tax Ramifications of Catching Home Run Baseballs, 59 Case W. Res. L. Rev. 191 (2008)
- Joseph M. Dodge, Accessions to Wealth, Realization of Gross Income, and Dominion and Control: Applying the “Claim of Right Doctrine” to Found Objects, Including Record-Setting Baseballs, 4 Fla. Tax Rev. 685 (2000)
(Hat Tip: Lee Sussman.)
- CNN, Controversy Over 'Lost' Ansel Adams Photos Turns Negative
- NPR, Ansel Adams Heirs Challenge Garage-Sale Negatives
Update #2: Legal Blog Watch, Tax Professor Casts Ray of Sunshine on Yard Sale Bargain Hunters.