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Tax Professor Casts Ray of Sunshine on Yard Sale Bargain Hunters

Since federal income taxation is not covered on the bar exam (at least as far as I can recall), few aspiring lawyers were likely thinking about it this week. Luckily, Paul Caron at the TaxProf Blog was. Because, you know, that's his job.

This morning he analyzes the tax consequences of what he calls the "mother of all yard sale bargains." Some dude named Rick Norsigian was yard sale shopping in California about 10 years back and bought two boxes of glass photographic plates. He bargained the seller down from $75 to $45. Good haggling, Rick. As it turned out, these plates were apparently the work of Ansel Adams. Yes, that Ansel Adams.

Norsigian hired experts to authenticate the plates, and, as reported by Norsigian's lawyer (natch), they concluded that the plates were, indeed, Adams's work and might be worth $200 million, though the famed photographer's heirs aren't convinced.

Anyway, back to tax. Caron raised and answered the question: Does this guy have to report $199,999,955 in income, assuming his claims as to authenticity and value hold up?

Luckily for him, that's a negatory:

The leading case [on the IRS's "treasure trove" regulation] 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.

Caron goes on to cite an example from a tax casebook about an antique dresser.

Whether Norsigian intends to sell the plates themselves is unclear, but authentication hot off the presses, he is selling "limited edition prints" (one of which is pictured above) on his website. The price for a 24-inch-by-30-inch digital print: a cool $1500. Presumably, all taxable as income.

Posted by Eric Lipman on July 29, 2010 at 01:17 PM | Permalink | Comments (3)


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