Appeal from the United States Tax Court, No. 13143-82 -- Charles R. Simpson, Judge.
Bauer, Chief Judge, Wood, Jr., Circuit Judge, and Eschbach, Senior Circuit Judge.
WOOD, JR., Circuit Judge.
This is an appeal from the tax court's decision affirming the Commissioner's deficiency determination against the taxpayers, David H. Orth and Barbara A. Orth. The taxpayers donated 73 lithographs to various charitable organizations, and claimed a charitable contribution deduction in the amount of $300 per lithograph, the price for which similar lithographs allegedly were sold in galleries or from art dealers. The Commissioner valued the lithographs using the price which the Orths and others paid when buying the lithographs in bulk from wholesalers. The taxpayers argued that the Commissioner undervalued their deduction. The tax court found that the Commissioner's valuation was correct, and the taxpayers appeal.
The tax court made the following findings of fact. (For additional findings of fact, see Lio v. Commissioner, 85 T.C. 56 (1985).) This court must accept the tax court's findings unless they are clearly erroneous. Illinois Power Co. v. Commissioner, 792 F.2d 683, 685 (7th Cir. 1986).
Taxpayer David H. Orth, a physician, is married to taxpayer Barbara A. Orth. In September of 1978, the taxpayers paid $10,000 to purchase 100 unframed lithographs created by artist Leonardo Nierman.*fn1
A lithograph is a piece of paper on which an image is artistically reproduced. The image is produced by pressing the paper onto a hard object known as a plate, which has part of its surface covered with ink. A plate is used to create multiple impressions of the same image, and the plate is then destroyed or cancelled. Editions generally are limited in number.
Lithographs usually are sold to the public by art galleries and art dealers. While more lithographs are sold framed it is not uncommon for the public to purchase unframed lithographs from galleries and dealers.
A "suite" is a term used in the retail art trade for a set of works, usually by the same artist and often on the same theme or subject matter, compiled and offered together as a set. A single suite of "Intuition de L'Univers" consists of ten lithographs, and a double suite of "Intuition de L'Univers" consists of twenty lithographs. Leonardo Nierman created 271 "Intuition de L'Univers" suites: 101 double suites and 170 single suites, for a total of 3,720 lithographs.
The taxpayers purchased the lithographs from Greenwich Art Consultants, Inc. (Greenwich), a joint venture between Art Consultants, Ltd. (Art Consultants) and Preferred Partnerships, Inc., formed for the limited purpose of selling lithographs from Nierman's "Sound of Color" and "Intuition de L'Univers" editions.
Art Consultants was a subchapter S corporation whose business consisted of selling graphics. Almost all of these graphics were sold unframed to individuals. Art Consultants did not have a public area for display of art. It used an office which was rented by the law firm of Kamensky and Rubinstein, the firm which represented the taxpayers in this appeal, to store art and maintain its books and records. Greenwich used the facilities and personnel of Art Consultants.
As part of a package of art and services, Art Consultants provided the following tax-related services to Dr. Orth: letters from the organizations to which he contributed lithographs acknowledging their receipt; appraisals of the 73 lithographs, one by R. Bruce Duncan, president of the Chicago Appraisers Association, who appraised them at $24,000, the other by Ross Edman, a Chicago appraiser, who appraised the lithographs at $25,464;*fn2 and photographs of the lithographs.
Lublin Graphics, Inc. (Lublin), was the sole United States distributor of Nierman lithographs. During 1978 and 1979, Lublin sold a total of 2,319 Nierman lithographs; Greenwich purchased approximately 63% (1,473) of these lithographs for $50 each. All of the Nierman lithographs that Greenwich purchased were from either the "Sound of Color" or the "Intuition de L'Univers." Greenwich sold almost all of ...