Blockage discounts apply to art valuations too

BVWireIssue #94-2
July 21, 2010

Lance Hall’s (FMV Opinions) recent article “Solving the Blockage Discount Dilemma” (BVUpdate Aug 2010) brought readers up to date on the use of blockage discounts in business valuations; Alan Breus’ (The Breus Group) recent Journal of Accountancy (July 2010) article addresses the use of blockage discounts when valuing art for tax and non-tax purposes.

The concept of a blockage discount in art is borrowed from business valuation. It describes the reduction in value when similar items are presented for sale at the same time,” Breus reports. “In art, the concept was first applied to the estate of artist David Smith, who left as part of his estate assets over 400 sculptures. The estate convinced the Tax Court that, as a group, the sculptures should be devalued, as there would not be
enough ready and able buyers willing to pay full price if the items were offered for sale at the same time. The agreed-upon discount was 37%.”  Breus also discusses other decisions recognizing blockage discounts of artworks for gift tax purposes, such as Calder v. Commissioner, 85 TC 713 (1985) and Estate of Georgia T. O’Keeffe v. Commissioner, TC Memo 1992-210.

Click here for the full text of the article “Valuing Art of Tax Purposes.”

Please let us know if you have any comments about this article or enhancements you would like to see.