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U.S. tax laws add another twist to the buying of art. Great works donated to museums can be deducted as charitable contributions, and thus reduce tax bills by sums that may range as high as 91¢ per dollar on the value of the donation. (To get agreement on the value is a touchy negotiation, in which some dealers, siding with rich clients, tend to overappraise works of art, while skeptical Internal Revenue agents fight them down.) Furthermore, a legal loophole lets the donor "give" the work while yet keeping it for his own enjoyment until he dies. The beneficial effect of the law is to make great works gravitate to public museums, where everyone can enjoy them. Nonetheless, Dealer Alexandre Rosenberg, one of Manhattan's big four (but no kin to the under-bidders on the Rembrandt), estimates that if the Internal Revenue Service ever ended this particular tax dodge, the art market would decline by 50%.
Just before the Parke-Bernet sale, the Manhattan dealer French & Co. put out a handsome brochure to seduce more collectors into this fascinating game with "that other avid collector, Uncle Sam." French & Co. takes the case of a hypothetical Mr. Martin, a man in the 90% bracket, who bought a $30,000 painting some years ago and now finds it worth $70,000. Should he sell it? No, says French & Co. If he does, he will pay a 25% capital-gains tax on $40,000 and thus make himself a profit of only $30,000. Should he give it away to a museum? No, no, says French & Co. Though he will be able to deduct the entire $70,000 for a saving of $63,000 on his tax, his profit will still be only that saving minus the original cost, or $33,000. But if he sells the painting to a museum for the original $30,000, thus recovering his original investment, he can still deduct $40,000 for a tax saving of $36,000. Clever Mr. Martin's profit is thus $3,000 more than if he had given the painting away.
Fakes & Fraud. More than ever, the high prices of the art market attract the ingenious faker. One standard way for a dealer to promote an artist is to get a book written about him, but there has been at least one case in which a book contained nothing but fakes, all reproduced in glorious color. No U.S. law protects a buyer who finds himself with a fake, and the legitimate dealers are forced to watch in silence out of fear of being sued for libel. Says a top international dealer: "Millions and millions are spent on fakes by the public each year. In the last few years, a large number of Matisse fakes have appeared, some of which have been traced to a workshop in Japan." To compound the problem, some museums knowingly try to get rid of their fakes by selling them to the public.