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Tax Court Defers Decision on Whether Artwork Is Includable in Estate

FEB. 3, 2020

Wildenstein, Estate of Daniel et al. v. Commissioner

DATED FEB. 3, 2020
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Wildenstein, Estate of Daniel et al. v. Commissioner

ESTATE OF DANIEL WILDENSTEIN,
DECEASED, ROYAL BANK OF CANADA
TRUST COMPANY (BAHAMAS LIMITED,
AS SUCCESSOR TRUSTEE OF THE DELTA
TRUST,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

ORDER

This case is before the Court for decision on cross-motions for partial summary judgment. The documents filed and reviewed in relation to those motions are: Respondents Motion for Partial Summary Judgment; Respondent's Declaration of Carina J. Campobasso in Support of Motion for Partial Summary Judgment; Petitioners' Opposition to Motion for Partial Summary Judgment; Petitioners' Declaration of Mark A. Popovsky in Support of Opposition to Motion for Partial Summary Judgment; Petitioners' Declaration of Marc-Andre Renold in Support of Opposition to Motion for Partial Summary Judgment; Petitioners' Declaration of Claudine Godts in Support of Opposition to Motion for Partial Summary Judgment; Petitioners' Declaration of Guy Wildenstein in Support of Opposition to Motion for Partial Summary Judgment; Petitioners' Declaration of Nirvana Deweever in Support of Opposition to Motion for Partial Summary Judgment; Petitioners' Motion for Partial Summary Judgment; Respondent's Objection to Motion for Partial Summary Judgment; Respondent's Declaration of Carina J. Campobasso in Support of Objection to Motion for Partial Summary Judgment; Petitioners' Memorandum of Law in Reply to Respondent's Objection to Motion for Partial Summary Judgment; Petitioners' Declaration of Marc-Andre Renold in Support of Memorandum of Law in Reply to Respondent's Objection to Motion for Partial Summary Judgment; and Petitioners' Request for Oral Argument.

In response to parties' request for a hearing on the motions, the Court requested and participated in a conference call with the parties on January 24, 2020. The parties acknowledged that they had no additional arguments in support of or in objection to the pending motions but desired to accommodate the Court in understanding the issues. The Court denied the request, indicating that a hearing was unnecessary and might be impractical for the parties and/or the Court.

Because the Court has concluded for reasons described below that both motions for partial summary judgment should be denied, it is not necessary to summarize or address all of the arguments of the parties made in their extensive filings. We set forth here only the brief explanation of our rulings provided to the parties in the conference call on January 24, 2020. We commented that the motions might be regarded as premature and that our ruling at this time would not confine another Judge to whom the case might be assigned for an eventual trial. Because the expressed desire of the parties is to refer the case back to the Office of Appeals, trial is not expected to proceed on an expedited basis. At the present time, the case is assigned to the undersigned solely for ruling on the pending motions.

Respondent's motion asks the Court to rule as a matter of law that certain artwork shipped from the United States before decedent's death to a duty-free warehouse (a "freeport") in Switzerland and ultimately returned to the United States has a "situs" in the United States and is includible in decedent's estate for purposes of the United States estate tax. Respondent relies on various authorities, including Delaney v. Murchie, 177 F.2d 444 (1st Cir. 1949), for the proposition that property may have a situs in the United States even though the property is temporarily outside of the United States. None of the authorities, however, is directly in point in the circumstances and posture of this case.

For purposes of respondent's motion, respondent assumes, as asserted by petitioner, that decedent was domiciled in France at the time of his death so that the Convention between the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion (the treaty) applies. The treaty provides in part that "tangible movable property which is in transit shall be considered situated at the place of destination." Respondent thus contends that artwork that made a roundtrip from and to the United States before and after decedent's death should be regarded as in transit at the date of death. The artwork subject to the requested ruling is unascertained because: "Respondent notes, however, that as a practical matter, because the artworks at issue in the instant motion were selected to exclude any artworks owned by the Delta Trust that remained in the Swiss Freeport for more than a specified period of time after Mr. Wildenstein's death, respondent has already in effect determined not to challenge the situs of those works that still had not been returned to the United States after that time." In other words, respondent's plea that we determine as a matter of law that artwork was in transit if it made a roundtrip to and from the United States before and after decedent's death is subject to a determination of material facts including the time elapsed before each return trip was completed after the date of death.

Respondent urges that once the narrow issue presented by the motions has been decided, the case can be sent to the Office of Appeals for a conference with petitioner in order to determine exactly which works are includible in decedent's estate and to value the affected works. However, depending on the facts as to which, if any, pieces of art were in transit as of the date of death and a determination of decedent's domicile, an opinion agreeing with either party on the narrow legal issue would be advisory and would possibly become moot at the time the case is resolved. That "in transit" is inherently factual is established by the multiple declarations relied on by petitioner concerning the circumstances under which various pieces of art were sent to Switzerland and returned to the United States. Petitioner's objections to respondent's motion are persuasive. There is thus a genuine dispute as to material facts that precludes summary judgment. Rule 121(b), Tax Court Rules of Practice and Procedure.

On the other hand, petitioner's motion for partial summary judgment contends that the plain language of the treaty defines situs and that the decedent was unquestionably domiciled in France at the date of death. Petitioner rejects the characterization of any artwork as "in transit", noting that in some cases many years elapsed before the roundtrip was completed. The declarations relied on by petitioner are of persons who have not been cross-examined. Petitioner also disputes the significance of respondent's characterization of Switzerland storage facilities as a freeport and respondent's policy arguments concerning tax avoidance. Respondent's objections to petitioner's motion are persuasive. We cannot conclude that petitioner is entitled to judgment as a matter of law.

Upon due consideration and for cause, it is hereby

ORDERED that respondent's motion for partial summary judgment filed May 13, 2019, is denied. It is further

ORDERED that petitioner's motion for partial summary judgment filed August 27, 2019, is denied.

(Signed) Mary Ann Cohen
Judge

Dated: Washington, D.C.
February 3, 2020

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