Estate of James A. Elkins, Jr., Margaret Elise Joseph and Leslie Keith Sasser, Independent Executors v. Commissioner

ESTATE OF JAMES A. ELKINS, JR., DECEASED, MARGARET
ELISE JOSEPH AND LESLIE KEITH SASSER, INDEPENDENT
EXECUTORS, PETITIONERS v. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT
Docket No. 16597–10. Filed March 11, 2013.

D owned undivided fractional interests in 64 works of
contemporary art.
1. Held: In valuing certain of those fractional interests,
pursuant to I.R.C. sec. 2703(a)(2) we disregard D’s agreement
by which he waived his right to institute a partition action
with respect to some of the works of art and thereby relin-
quished an important use of his fractional interests in those
works.
2. Held, further, the total fair market value of D’s interests
in the art determined. See I.R.C. sec. 2031.

Donald Frederick Wood, J. Graham Kenney, Harry M. Rea-
soner, Stacey N. Vu, and Juliana D. Hunter, for petitioners.
Warren P. Simonsen, Sharyn M. Ortega, and Susan S. Hu,
for respondent.
HALPERN, Judge: By notice of deficiency issued to peti-
tioners (notice), respondent determined an estate tax defi-
ciency of $9,068,265. Petitioners (Ms. Sasser and Ms. Joseph)
are the coexecutors of the Estate of James A. Elkins, Jr.
(estate), and are decedent’s daughters. Their brother, James
A. Elkins III (James III), who was also a coexecutor of the
estate, died on June 10, 2010, less than a month after
respondent issued the notice, and will not be replaced as a
86

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coexecutor. The issue to be decided is the total fair market
value of decedent’s undivided fractional interests in 64 works
of art, which interests are includable in decedent’s gross
estate.
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for 2006, the year in which
decedent died, and all Rule references are to the Tax Court
Rules of Practice and Procedure.

FINDINGS OF FACT

Residence
When they filed the petition, petitioners resided in
Houston, Texas.
The Art
Decedent (sometimes, Mr. Elkins) and Mrs. Elkins pur-
chased 64 works of art (sometimes, when referenced collec-
tively, art) between 1970 and 1999. Mr. and Mrs. Elkins pur-
chased all 64 works during their marriage. The art became
community property under Texas law. The art principally
consists of works of contemporary art. The collection includes
works by a number of famous artists, including Pablo
Picasso, Henry Moore, Jackson Pollock, Paul Cezanne, Jasper
Johns, Ellsworth Kelly, Cy Twombly, Robert Motherwell,
Sam Francis, and David Hockney. Both before and since
decedent’s death, on February 21, 2006 (valuation date), the
art has been displayed primarily in decedent and Mrs.
Elkins’ family home and at the family office, both in
Houston, Texas. Some works are at various other locations in
the Houston area or, in one instance, Galveston, Texas.
Those other locations are homes belonging to petitioners and
to Virginia Arnold Elkins, the widow of James III. One work
is on loan to the Museum of Fine Arts, Houston. None of the
64 works have been sold since decedent’s death.
Creation of Fractional Interests in the Art
The GRIT Art
On July 13, 1990, Mr. and Mrs. Elkins each created a
grantor retained income trust (GRIT) funded by each’s undi-
vided 50% interests in three of the works in the collection:

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a large Henry Moore sculpture, a Pablo Picasso drawing, and
a Jackson Pollock painting (GRIT art). 1 Each trust was for
a 10-year period, during which the grantor retained the ‘‘use’’
of the transferred interests in the art. At the conclusion of
the 10-year period, each grantor’s interests were to go to the
Elkinses’ three children, which, in effect, would give them
100% ownership of the GRIT art, one-third each.
Mrs. Elkins died on May 19, 1999, before the expiration of
the 10-year period of her GRIT. Pursuant to the terms of her
GRIT, her 50% undivided interests in the GRIT art passed
to Mr. Elkins. Because Mr. Elkins survived the 10-year term
of his GRIT, his original 50% undivided interests in the
GRIT art passed to his three children in equal shares so that
each received 16.667% interests in the GRIT art. Decedent
retained the 50% interests in the GRIT art that he received
upon Mrs. Elkins’ death, which constitute part of his gross
estate.
Decedent and the Elkins children executed a lease agree-
ment (art lease) covering two of the three works of GRIT art
(the Picasso drawing and the Pollock painting), made effec-
tive ‘‘as of the 13th day of July, 2000’’ (the expiration date
of decedent’s GRIT). Under the art lease, the Elkins children
leased their combined 50% interests in the two works to
decedent, in effect allowing him to retain year-round posses-
sion of those works. There was an initial lease term, with
automatic extensions, unless decedent opted out of an exten-
sion, which he never did. Section 10 of the art lease provides,
in relevant part, as follows: ‘‘Sale. Lessors and Lessee each
agrees not to sell his or her percentage interest in any item
of the * * * [leased artwork] during the Initial Term or any
Additional Term without the joinder of * * * [the parties to
the art lease] for the purpose of selling the item * * * in its
entirety.’’ Section 13 states that the lease and the parties’
‘‘rights, duties and obligations’’ under it ‘‘may not be trans-
ferred or assigned’’ without the consent of all parties and
that, subject to that restriction on assignment, the lease
‘‘shall be binding upon and inure to the benefit of Lessors
and Lessee and their respective heirs, representatives, suc-
cessor and assigns.’’
1 Mr. and Mrs. Elkins partitioned their community property interests in

the GRIT art before creating the GRITs.

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The rent due under the lease was left blank in the original
agreement and was not computed until May 16, 2006, when
Deloitte LLP made a determination of the appropriate
monthly rental for the two works. That determination
resulted in a finding of rent due of $841,688 for the period
from July 13, 2000, through the valuation date. The estate
sought to deduct its payment of that amount to the Elkins
children. On audit, the parties agreed to reduce the amount
of that deduction to $10,000, the propriety of which is not at
issue herein.
The Disclaimer Art
Under Mrs. Elkins’ will, her 50% community property
interests in the other 61 works of art passed outright to
decedent. Mr. Elkins decided, however, to disclaim a portion
of those interests equal in value to the unused unified credit
against estate tax, see sec. 2010, available to Mrs. Elkins’
estate so that the disclaimed portion could pass to the Elkins
children free of estate tax. On the basis of appraisals
obtained by Mrs. Elkins’ estate, decedent disclaimed a
26.945% interest in each of the 61 works (disclaimer art).
Pursuant to Mrs. Elkins’ will, those fractional interests
passed to the Elkins children, one-third each. As a result,
each child received an 8.98167% interest in each item of the
disclaimer art, and the balance, a 23.055% interest in each
item, passed to decedent. Thus, decedent retained a 73.055%
interest in each item of the disclaimer art (his original 50%
interest plus the additional 23.055% interest received from
Mrs. Elkins that he did not disclaim).
On February 14, 2000, shortly after decedent executed his
partial disclaimer, decedent and the Elkins children entered
into a ‘‘Cotenants’ Agreement’’ (cotenants’ or original coten-
ants’ agreement) relating to the disclaimer art. In relevant
part, the cotenants’ agreement provides as follows:
This Agreement is made as of the 25th day of February, 2000, by and
among James A. Elkins, Jr., Margaret Elise Joseph, James A. Elkins, III
and Leslie Keith Elkins (hereinafter referred to individually as ‘‘Coten-
ant’’ and collectively as ‘‘Cotenants’’), all of Houston, Texas.
WHEREAS, each Cotenant is the owner of an undivided interest in
each item of property described in Exhibit A attached hereto and made
a part hereof (hereinafter, all of such property or any part thereof shall
be referred to as the ‘‘Property’’).

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WHEREAS, Cotenants desire to clarify certain of their responsibilities
and duties related to the use, possession and care of the Property.
NOW THEREFORE, in consideration of the above and of the mutual
covenants contained herein, Cotetants hereby agree as follows:
1. Beginning on the date of this Agreement, each Cotenant shall have
the right of possession, dominion, and control of each item of the Prop-
erty for a total number of days out [of] a twelve month period that is
equal to his or her percentage interest in such item times the number
of days in such twelve month period. During a short calendar year, the
number of days to which a Cotenant is entitled to possession, dominion
and control of each item of the Property shall be prorated.
2. Each Cotenant, with respect to the exercise of his or her right of
possession, dominion, and control, shall request possession of an item of
the Property by giving 30 days’ written notice of such request to the Co-
tenant in possession of such item. The notice shall specify the number
of days to which such Cotenant is entitled to possession and the number
of days remaining thereof during the twelve month period (or a fewer
number of months for a short calendar year). In the event of a conflict
among the Cotenants at any time as to which Cotenant is entitled to
possession of an item of the Property, Cotenant James A. Elkins, Jr.
shall determine which Cotenant is entitled to possession and the number
of days remaining thereof.
3. The Cotenant requesting possession (the ‘‘Receiving Cotenant’’) of an
item of the Property shall be responsible for arranging and paying for
the transport of such item to the Receiving Cotenant’s residence.

* * * * * * *
6. Each Cotenant shall be responsible, to the extent of his or her
percentage interest in the Property, for the cost of maintaining and
restoring the Property.
7. An item of the Property may only be sold with the unanimous consent
of all of the Cotenants. Any net proceeds from the sale of such item shall
be payable to the Cotenants in accordance with their respective percent-
age interests in the Property.
8. This Agreement shall be binding on Cotenants and on their respective
heirs, personal representatives, successors and assigns.
9. This Agreement shall be governed and construed under the laws of
the State of Texas.

After decedent’s GRIT terminated on July 13, 2000, the
parties to the cotenants’ agreement amended it (amended co-
tenants’ agreement or, when not differentiating between the
original and amended agreements, cotenants’ agreement),
effective as of that date, by incorporating therein one of the
three works of GRIT art (the large Henry Moore sculpture
that was not included in the art lease). On February 17,

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2006, the Elkins children signed the amended cotenants’
agreement, both for themselves and (under a January 28,
2000, power of attorney) for decedent.
Decedent’s Will
Decedent’s will provides that his descendants inherit his
personal and household effects, which included his undivided
fractional ownership interests in the art. Decedent’s resid-
uary estate passed to the James A. Elkins, Jr. and Margaret
W. Elkins Family Foundation (Elkins Foundation), a bequest
that entitles the estate to a charitable contribution deduction
under section 2055. The will provides that all estate taxes,
plus any interest and penalties, due by reason of decedent’s
death (but not including taxes due with respect to the assets
in Mrs. Elkins’ marital trust includable in decedent’s gross
estate under section 2044) shall be charged against his resid-
uary estate. Thus, any additional estate taxes payable by the
estate as a result of this case will correspondingly reduce the
distribution to the Elkins Foundation and the charitable con-
tribution deduction with respect thereto.
Decedent’s Estate Tax Return
Petitioners timely filed a Form 706, United States Estate
(and Generation-Skipping Transfer) Tax Return (estate tax
return), on May 21, 2007, in which they reported a Federal
estate tax liability of $102,332,524. Schedule F, Other Mis-
cellaneous Property Not Reportable Under Any Other
Schedule, included in decedent’s gross estate his 73.055%
interests in the 61 works of disclaimer art that were subject
to the original cotenants’ agreement, valued at $9,497,650,
and his 50% interests in the three works of GRIT art (two
of which remained subject to the art lease on the valuation
date), valued at $2,652,000. Those amounts were derived by,
first, determining decedent’s pro rata share of the fair
market value of the art as determined by Sotheby’s, Inc.,
and, then, applying a 44.75% combined fractional interest
discount (for lack of control and marketability), as deter-
mined by Deloitte LLP, to those pro rata share amounts. The
parties have stipulated a total (undiscounted) fair market
value, as of the valuation date, of $24,580,650 for the dis-

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claimer art and $10,600,000 for the GRIT art. 2 A list of the
64 works of art, their status as GRIT art or disclaimer art,
and the stipulated fair market value of each work is attached
to this Opinion as appendix A.
Notice
In the notice, respondent determined that decedent’s gross
estate included his 73.055% interests in the disclaimer art at
an undiscounted fair market value of $18,488,504 3 and his
50% interests in the GRIT art at an undiscounted fair
market value of $5,300,000. As alternative bases for his
using undiscounted values of decedent’s fractional interests
in the art in computing decedent’s taxable estate, respondent
determined that (1) the restrictions on the sale of art subject
to the cotenants’ agreement and fractional interests in art
subject to the art lease constituted ‘‘an option, agreement, or
other right to acquire or use such artwork at a price less
than the fair market value’’ and, alternatively, ‘‘a restriction
on the right to sell or use the decedent’s interest in such art-
work’’ so that, pursuant to section 2703(a)(1) and (2), respec-
tively, decedent’s interests in the art covered by those agree-
ments ‘‘should be valued without regard to’’ those restric-
tions; (2) ‘‘the discounts used in calculating the fair market
value of Decedent’s fractional interests in * * * [the art] are
overstated and no discount is appropriate.’’ In addition,
because decedent’s will provided that all estate taxes were to
be paid out of his residuary estate passing to the Elkins
Foundation, the notice reduces the deduction for the chari-
table bequest to that foundation by the amount of the pro-
posed estate tax deficiency, i.e., by the amount of additional
estate tax payable by the estate.

2 Sotheby’s
had derived a date-of-death fair market value of $23,530,650
for the disclaimer art and $9,600,000 for the GRIT art.
3 That amount is 73.055% of $25,307,650 rather than of $24,580,650,

which is the parties’ stipulated undiscounted fair market value for the dis-
claimer art. Thus, the parties now appear to agree that the undiscounted
fair market value of decedent’s 73.055% interests in the disclaimer art is
$17,957,393 (73.055% of $24,580,650), not the $18,488,504 determined in
the notice.

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Petition
In response to the notice, petitioners timely filed the peti-
tion. In it, petitioners, in addition to assigning error to the
deficiency determined by respondent, seek a refund of estate
tax based upon the estate’s (1) overvaluation of the art, (2)
entitlement to a greater charitable contribution deduction
than claimed on the return in an amount equal to the estate
tax refund arising out of its overvaluation of the art, and (3)
entitlement to deductions for attorney’s, accountant’s, and
appraisal fees and other administration expenses in excess of
the amounts estimated on decedent’s estate tax return. 4
Petitioners’ Experts
In defense of their proposed discounts in valuing decedent’s
fractional interests in the art, petitioners offered the testi-
mony of three expert witnesses.
David Nash
The first, David Nash, has been an appraiser and seller of
fine art for over 48 years. He worked at Sotheby’s, Inc., for
35 years, was a member of the IRS Art Advisory Panel, and
has appraised works for collectors and museums, including
the Metropolitan Museum of Art, the Museum of Modern
Art, the Art Institute of Chicago, and the National Gallery
of Art. The Court accepted Mr. Nash as an expert in the art
market, the marketability of art, and art valuation, and we
received his written report into evidence as his direct testi-
mony.
In November 2008, before attempting to value decedent’s
fractional interests in the art as of the valuation date, Mr.
Nash viewed each of the 64 works in Houston and met with
the Elkins children. He came away from that meeting con-
vinced that any buyer of decedent’s interests in the art would
have to take into account the fact that the children (whom
he refers to as ‘‘the other shareholders’’) are ‘‘committed to
retaining the art in the family until the last shareholder
dies.’’ He was asked to assess the marketability of decedent’s
4 The estate’s entitlement to an additional deduction for administration

expenses is not at issue herein.

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interest in each work ‘‘rather than viewing the collection as
a whole.’’
He states, preliminarily, that collectors, museums, dealers,
art funds, and other investors or speculators constitute the
categories of potential buyers for a work of art. He describes
auction houses as retailers on consignment, not as pur-
chasers. He then considers each as a potential buyer of
decedent’s fractional interests in the art. His analysis is
informed by the expert report submitted by William T. Miller
(discussed infra), regarding the expense and likelihood of a
successful partition action with respect to the works subject
to the cotenants’ agreement.
In general, Mr. Nash concludes that all categories of poten-
tial buyers of fine art would demand steep discounts from
pro rata fair market value for decedent’s fractional interests
in the art and that auction houses simply do not market frac-
tional interests in fine art, a fact that, in and of itself, would
have ‘‘a significant [adverse] impact on the marketability of
* * * [decedent’s fractional] Interests.’’
Mr. Nash reasons that a collector would be put off by the
uncertainty of his ever being able to acquire the whole work,
potential disputes with the Elkins children over periods of
possession or, alternatively, over his right to sell a particular
work and his recognition that, probably, there would be com-
parable works by the same artist that he could purchase out-
right. Mr. Nash states that the collector’s only motivation for
buying a fractional interest in one of the works of art, even
at a steep discount, would be ‘‘the expectation or hope that
the work is so desirable that it will increase in value over
time and that eventually it will be possible to sell the whole
or acquire all of the outstanding shares’’.
Mr. Nash states that it is ‘‘highly unlikely’’ that a museum
would pay ‘‘anything close [to] the pro rata value of the frac-
tional share where they will never know if or when they will
be able to obtain full control’’ and that he did not ‘‘know of
any situation where a museum has ever paid for a fractional
interest in a work of art or a collection * * * [with] no assur-
ance * * * [of ever acquiring] full ownership.’’ He notes, how-
ever, that it is common for two museums to jointly purchase
a work (or works) of art and take turns exhibiting the
work(s) in proportion to their interests. He concludes, how-
ever, that museums would not be interested in purchasing

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joint interests in art where the coowners would be the Elkins
children rather than another museum or institution.
Mr. Nash similarly concludes that dealers, investors, and
art funds would have little interest in buying decedent’s frac-
tional interests, mainly because of the difficulty in reselling
them to collectors or museums, and that the ‘‘logistical dif-
ficulties and potential litigation would also be unappealing.’’
He notes that it is ‘‘common practice’’ among dealers to
jointly purchase artworks with the goal of reselling the works
in their entirety but that, because of the Elkins children’s
determined refusal to sell any of the works outside the
family, that option is essentially a nonstarter in this case.
Mr. Nash summarizes the ‘‘key factors’’ making decedent’s
fractional interests in the art ‘‘unappealing’’ to potential
buyers as follows: (1) the inability to sell the art at auction
houses, (2) the lack of exclusive possession and the inability
to force a sale of the art without litigation against the Elkins
children as coowners, (3) possible litigation involving time of
possession and proper care, storage, or transportation of the
art, and (4) the difficulty or impossibility of insuring the pur-
chased interest or using it as collateral for a loan. Nonethe-
less, he concludes that speculators ‘‘would be willing to pur-
chase * * * [decedent’s] interests if appropriately dis-
counted.’’
In determining the discounted fair market value of
decedent’s fractional interest in each of the 64 works of art,
Mr. Nash divides those works into three categories, which he
identifies as categories I–III.
Category I consists of five works that he characterizes as
‘‘highly desirable’’. He states: ‘‘Collectors, Dealers, Investors
and Museums might be willing to invest in * * * [those]
works * * * due to * * * [their] rarity and importance’’. The
five works range in stipulated fair market value from a high
of $8 million (Jasper Johns’ Figure 4) to a low of $1.5 million
(Robert Motherwell’s Elegy to Spanish Republic #134), and
Mr. Nash’s discounts from the pro rata fair market value of
decedent’s interests in those works are between 50% and
80%. 5
5 For
two of the works, Mr. Nash determines a range of discounted val-
ues for decedent’s fractional interests therein. Mark L. Mitchell is another
Continued

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Category II consists of 19 6 works for which, according to
Mr. Nash, ‘‘alternate choices could be found and purchased
outright * * * [noting that the artworks] are good examples,
but not masterpieces by the artist and the artist’s reputation
is more or less on the same level as in Category I, but will
include some artists who might not be so internationally rec-
ognized.’’ Mr. Nash concludes that, for those works, ‘‘a poten-
tial buyer would demand a discount of approximately 80–
90% of the pro rata value.’’
Mr. Nash describes the remaining 40 works, which he
places in category III, as ‘‘not worth the risk at any level’’,
and he opines that ‘‘a potential buyer would demand a dis-
count of approximately 95% of the pro rata value’’ so that
‘‘[a]s a result, these interests have only a nominal value.’’ In
reaching that conclusion he notes that, although the works
‘‘have a real international value, * * * neither the works
themselves nor their creators are in the masterpiece cat-
egory.’’ He does single out five of the works as having ‘‘rel-
atively high underlying values’’ but concludes that decedent’s
fractional interests in them still had only nominal values
because comparable works by the same artists were readily
available, in some cases for less money than the stipulated
pro rata fair market values of the examples contained in the
Elkins family collection.
On the basis of the foregoing, Mr. Nash finds the dis-
counted fair market value of decedent’s interests in the art
to be as follows:
Category I ............................................................. $4,336,859
Category II ........................................................... 976,451

of petitioners’ expert witnesses, whose valuations of the 64 works of art
(based, in part, on Mr. Nash’s report) are the valuations upon which peti-
tioners rely herein. For each of the two works for which Mr. Nash deter-
mined a range of values, Mr. Mitchell adopts the mean between the high
and low ends of the range as Mr. Nash’s discounted value of decedent’s in-
terests.
6 Mr. Nash lists 1 of the 19 works (Franz Kline’s The Hill) as a category

II work on an exhibit listing and categorizing all 64 works, but he
inexplicably omits that work from an exhibit separately listing the cat-
egory II works. He does, however, state that ‘‘40 interests are in Category
III’’, and, because 5 category I, 19 category II, and 40 category III works
total the 64 works under consideration, we conclude that Mr. Nash did, in
fact, intend to include the Kline in category II.

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Category III .......................................................... 149,056

Total .................................................................. 5,462,366

William T. Miller
William T. Miller is licensed to practice law in Texas, and
he has been a member of the Texas Bar since 1968. As an
attorney he has been involved in a number of partition
actions in Texas and has had experience with receivers and
agents for liquidating personal property, including works of
art. The Court accepted Mr. Miller as an expert on the
nature, procedure, time, and cost of partition actions litigated
in the Texas courts and received his written report into evi-
dence as his direct testimony, with modifications agreed to
by the parties.
Mr. Miller is of the opinion that, in Texas, the ‘‘right to
partition is absolute’’ and protected by statute but that ‘‘it is
also well settled that cotenants ‘may expressly or impliedly
agree not to partition’ ’’. (Citation omitted.) He assumes, for
purposes of his report, that paragraph 7 of the cotenants’
agreement, requiring unanimous consent of the coowners to
the sale of any art, ‘‘is, in essence, an agreement * * * not
to partition’’, that, therefore, the coowners ‘‘impliedly waived
their right [under Texas law] to partition’’, that that agree-
ment, under Texas law, would be binding on the coowners of
the art, but that a Texas court would strike paragraph 8 of
the agreement, which binds ‘‘heirs, personal representatives,
successors and assigns’’ to the terms thereof (leaving the rest
of the agreement intact), as ‘‘an invalid restraint on alien-
ation’’. Alternatively, he notes that the court might choose to
‘‘reform’’ paragraph 8 so that it would ‘‘terminate after a
reasonable period of time’’, e.g., the lives of the coowners. Mr.
Miller opines that, in any event, ‘‘the enforceability of the Co-
tenants Agreement will be a litigated issue in the Partition
Actions.’’ He does not view that fact as a ‘‘material element’’,
however, as regards ‘‘the procedure, time and costs of a * * *
partition action.’’ Like Mr. Nash, Mr. Miller was ‘‘instructed
that the interests in each Work of Art must be valued
individually’’, with the result that he assumes a separate
partition action for each work to be ‘‘the standard in deter-
mining costs and attorneys’ fees.’’

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Mr. Miller states that, if the cotenants’ agreement is held
to be enforceable, ‘‘any further partition action would be
prohibited’’, but he assumes, for purposes of his report, that
it would be held to be unenforceable so that partition actions
‘‘would proceed through a sale of the Work of Art.’’ He
describes the various steps and procedures of Texas partition
actions and concludes that a partition by sale of the art (with
a division of the proceeds among the coowners) is more likely
than a partition in kind (which would involve a time-sharing
agreement among the coowners) because the latter ‘‘would
mean * * * indefinite court supervision.’’ He posits that an
adversarial partition action would culminate in a public or
private sale of the art by a court-appointed receiver, although
the buyer of decedent’s fractional interests in the art would
be ‘‘subject to the risk that his interest could be sold at a
sheriff ’s sale * * * [, which] would substantially reduce the
amount that might be recovered’’.
Mr. Miller states that, most likely, any partition action
with respect to the art would entail a two-step procedure: a
trial to determine (1) the enforceability of the cotenants’
agreement, (2) whether partition by sale or in kind is appro-
priate, (3) the coowners’ interests, (4) whether the art is
susceptible to partition, and (5) whether to appoint a receiver
for any sale of the art, followed by a second trial to deter-
mine the terms of any proposed sale, the property to be sold,
the method of sale, and the distribution of proceeds among
the coowners. He opines that the first trial would take 18 to
24 months and the second, an additional 12 to 18 months. He
states that both decisions would be appealable, that each
appeal could take an additional 18 to 24 months, and that it
was possible, under Texas law, to suspend the sale of any
piece of art subject to litigation during the entire appeal
process. Thus, assuming appeals (and, worst case, assuming
an appeal of the first decision to the Texas Supreme Court,
which could take an additional 6 to 12 months), the entire
process before the Texas courts could take anywhere from 6
to 91⁄2 years for each partition action, averaging 7 years in
duration. Mr. Miller limits that timeframe to litigation
involving ‘‘the more expensive Works of Art’’ (pro rata value
in excess of $650,000, which would encompass 9 of the 64
works and 8 of the 62 works of cotenant art), reasoning that
‘‘a second appeal would not occur’’ with respect to the less

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valuable works (pro rata value below $650,000) because
litigation costs would exceed the values of the works. For
those works, he estimates a timeframe of three to four years
for each partition action.
Mr. Miller estimates that a buyer of decedent’s fractional
interest in any of the more expensive works would have
$650,000 in total legal and receiver fees in a partition action
for a court-ordered sale of the works. For works with a pro
rata fair market value between $250,000 and $650,000, Mr.
Miller reduces that amount to $250,000. For the rest of the
works, he assumes fees equal to the pro rata value of each
work ‘‘because no ‘willing buyer’ would expend more in litiga-
tion than the value of * * * [the purchased fractional
interest]’’. Mr. Miller notes that there would be additional
costs for sales commissions, appraisal fees, and auction house
fees. Lastly, Mr. Miller assumes that a receiver would take
possession of the art so that there would be additional costs
for crating, moving, and storing the art, as well as costs for
insurance.
In summary, Mr. Miller assumes that, for a hypothetical
buyer instituting a partition action with respect to any one
of the more valuable works of art in the Elkins family collec-
tion, the total costs for legal fees and other expenditures,
could be anywhere from $25,000 to over $1,100,000 (for
Jasper Johns’ Figure 4) from trial through the appeal
process.
Mark L. Mitchell
Petitioners’ third and final expert witness, Mark L.
Mitchell, testified in his capacity as director of valuation
services for Clothier & Head, P.S., of Seattle, Washington.
He holds a B.S. and an M.B.A. degree from Southern Meth-
odist University and is experienced in providing valuation
consulting services in litigation support situations, including
tax litigation. He has testified on behalf of the Commissioner
and has completed numerous assignments in valuing intan-
gible assets; e.g., patents, trademarks, and trade names. His
work has included the valuation of assets where there was
no active or regular market, including the valuation of undi-
vided interests in property, but not including (until this
assignment on behalf of petitioners) works of art. The Court

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 100 140 UNITED STATES TAX COURT REPORTS (86)

accepted Mr. Mitchell as an expert in the valuation of undi-
vided interests in personal property and received the Clothier
& Head, P.S. report, prepared by Mr. Mitchell, in evidence
as Mr. Mitchell’s direct testimony.
Mr. Mitchell states that, in reaching his valuation conclu-
sions, he relied on Mr. Nash’s report as the source for the
stipulated, undiscounted fair market values of the 64 works
of art and for ‘‘insight into the potential market for the Undi-
vided Interests’’, and on Mr. Miller’s report regarding parti-
tioning rights and costs related to partition actions including
‘‘costs associated with a legal challenge of the Cotenants’
Agreement’’. His final valuation conclusions are based upon
those two reports, his analysis of the economics of the art
market, and his quantitative methodology.
Mr. Mitchell states that, unlike pure consumption or pure
financial assets, art provides both a psychic and financial
return to the investor, and, because of that, an art buyer will
accept lower financial returns, including less liquidity and
certain additional costs (e.g., insurance, maintenance), than
will buyers of pure financial assets. He reasons that that is
truer of collectors than it is of speculators, who do not seek
a psychic benefit and, therefore, normally, will pay less than
collectors.
After describing the cotenants’ agreement and the nature
of an undivided (fractional) interest in a work of art, Mr.
Mitchell notes that the limitations that both have on the
owner of an undivided interest in any of the 62 works subject
to the (amended) cotenants’ agreement (e.g., lack of control,
limited use of the art as collateral, the need for a lengthy
and expensive partitioning process before any sale, a limited
market for such interests) justify ‘‘substantial’’ discounts. He
also states that ‘‘the absence of transaction data involving
the fractional ownership of art does not suggest that dis-
counts do not exist for undivided interests in art.’’ Instead,
he views the circumstance as ‘‘evidence * * * that there are
very few willing buyers of such interests, not that there is a
limited number of willing sellers.’’
Mr. Mitchell states that there are two options for the
holder of an undivided interest in art (holder) to monetize his
holding (absent unanimous consent of all undivided interest
holders): option 1, a sale of his undivided interest or, option
2, a successful partition action ultimately leading to a sale of

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the work and pro rata distribution of the proceeds among all
interest holders.
According to Mr. Mitchell, under option 1, the holder and
the hypothetical willing buyer would consider a number of
adverse factors in arriving at a price for the holder’s undi-
vided interest in any one of the 62 works of art subject to the
amended cotenants’ agreement, including the need to obtain
unanimous consent of all cotenants to sell the work of art,
limited possession of the art and, hence, reduced psychic ben-
efit, the cost of transporting the art from another cotenant,
joint responsibility for insurance, maintenance or restoration
costs with respect to the work of art, and risk of damage to
the art by other cotenants, all of which would induce a
prospective collector-buyer to demand a substantial return
premium (i.e., discount) related to the reduction of both the
buyer’s psychic and financial returns attributable to frac-
tional ownership. The need for an enhanced return premium
would mean a substantial reduction in value from pro rata
fair market value. The speculator-buyer’s exclusive reliance
on marketability (i.e., financial return) means that his finan-
cial return premium would be significantly higher than the
collector’s.
With respect to option 2, Mr. Mitchell concludes that the
dollar amount of any discount must exceed anticipated parti-
tion litigation costs to make the investment worthwhile. He
also notes that, because a partition action will most likely
provide a strictly financial outcome (share of proceeds of a
court-ordered sale of the art), the buyer will have abandoned
any psychic benefit and, therefore, is necessarily a specu-
lator, not a collector.
In valuing decedent’s undivided interest in each work of
art, Mr. Mitchell assumes, on the basis of the Nash and
Miller reports, that the other interest holders have no desire
to sell the art so that, under option 1, the hypothetical buyer
‘‘faces the prospect of holding a non-marketable interest
* * * [indefinitely], with no prospects for * * * [monetizing
his interest] and no ability to control decisions regarding the
underlying * * * Art’’, and, under option 2, he is, in effect,
purchasing a ‘‘litigation claim’’.
Mr. Mitchell then notes that, because art collectors do not
purchase art with the primary intent to profit on a later sale
thereof, despite the greater volatility and risk associated

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with art as compared with alternative investments (e.g.,
Government bonds or stock), the financial returns on the
former are generally lower than they are on the latter. That
apparent anomaly is explained by the psychic benefit that
the art collector derives from the art.
On the basis of his analysis of the Nash report, the
expected holding period for the art, rates of return data from
various art research studies, and anticipated inflation, Mr.
Mitchell determines that an option 1 hypothetical buyer of
an undivided interest in art would expect a nominal financial
return for art in general of 6% and, in this case, need an 8%
‘‘consumption return’’ in order to compensate for diminished
psychic benefit. To that 14% incremental return Mr. Mitchell
would add ‘‘an increment to account for impaired market-
ability and other risk factors.’’ He concludes that an assumed
10-year holding period ‘‘is a reasonable basis on which to
assess discounts’’ and, in general, would require an addi-
tional 2% rate of return resulting in a 16% total required
rate of return for the hypothetical option 1 buyer (10%
‘‘return premium’’ and 6% financial return), assuming a 10-
year holding period for the purchased interest in the art.
Mr. Mitchell modifies the 16% overall rate of return he
deems necessary for an option 1 hypothetical buyer’s pur-
chase of an interest in art subject to the restrictions the
buyer would face in this case in order to account for the
varying quality of the works included in the Elkins collection.
For that purpose, he adopts Mr. Nash’s division of those
works into three categories.
Relying on Mr. Nash’s opinion of the category I works, Mr.
Mitchell differentiates them from his baseline return esti-
mates by reducing his 10% return premium to 8% for works
by Jackson Pollock and Henry Moore and increasing it to
12% for works by Sam Francis and Robert Motherwell and
14% for a work by Jasper Johns. He also reduces the
required financial return for the Johns work from 6% to 4%
because of its fragile condition and the potential ill effects of
shared ownership on such a work. Those adjustments result
in an overall 14% required rate of return for the Pollock and
the Moore and an overall 18% required rate of return for the
other three category I works. Using those rates of return, Mr.
Mitchell arrives at a 51.7% discount from pro rata fair
market value for decedent’s interests in the Pollock and the

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 (86) ESTATE OF ELKINS v. COMMISSIONER 103

Moore, a 65.8% discount for decedent’s interests in the
Francis and the Motherwell, and a 71.7% discount for
decedent’s interests in the Johns.
Relying on Mr. Nash’s description of the category II works,
Mr. Mitchell increases the return premium from 10% to 14%
and the overall required rate of return from 16% to 20%
resulting in a 71.1% discount from pro rata fair market value
for decedent’s interests in the 19 category II works.
Again, relying on Mr. Nash’s description of the remaining
(category III) works, Mr. Mitchell increases the return pre-
mium to 18% and reduces the financial return to 4%
resulting in an overall 22% required rate of return and a
79.7% discount from pro rata fair market value for decedent’s
interests in those works.
For option 2 buyers, Mr. Mitchell, relying on Mr. Miller’s
report, factors in the added costs and anticipated duration of
partition litigation and posits a 14% required annual rate of
return for all category I works (except for the Johns work)
and for five of the category II works. For the Johns work, Mr.
Mitchell posits an 18% required rate of return, again because
of its fragility (which he states ‘‘would tend to make the
issues * * * with respect to shared ownership [e.g., in-
transit damage to the work] more severe’’) and the high cost
of the investment. On the basis of those required rates of
return, he computes the option 2 discounts for the art as fol-
lows: for decedent’s interests in the category I works and five
of the category II works, discounts ranging from 60% to 85%;
for his interests in the balance of the category II works, a
discount of 90% plus, and for his interests in all category III
works a 100% discount, presumably on the theory that the
costs of litigation would exceed the sale price of all category
III works.
Finally, Mr. Mitchell selects the lesser of the option 1
versus option 2 discounts as the appropriate discount for
decedent’s interest in each work of art. 7 On the basis of
those discounts, he determines the discounted fair market
value for decedent’s interest in each work of art. Mr. Mitchell
finds the total discounted fair market value of decedent’s
interests in the art to be as follows:
7 With respect to all but two of the works of art, the option 1 discount

is lower.

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 104 140 UNITED STATES TAX COURT REPORTS (86)

Category I ............................................................. $5,150,420
Category II ........................................................... 1,904,117
Category III .......................................................... 604,108

Total .................................................................. 7,658,645

That total, although greater than the $5,462,366 total dis-
counted fair market value computed by Mr. Nash, is much
less than the $12,149,650 total discounted value for
decedent’s interests in the art reported on Schedule F of
decedent’s estate tax return. It is the difference between that
last amount and Mr. Mitchell’s discounted total fair market
value amount that constitutes the basis for the bulk of peti-
tioners’ claim for refund in the petition, the balance being
attributable to the increase in the charitable contribution
deduction arising by virtue of the refund relating to the
estate’s alleged overvaluation of the art on its return.
A copy of Mr. Mitchell’s table of all 64 works of art, the
Nash category of each work, Mr. Mitchell’s option 1 and
option 2 discounts, his concluded discount for each work, and
the resulting discounted fair market value of each is attached
to this Opinion as appendix B.

Respondent’s Experts
Karen Hanus-McManus
Since 2006, Karen Hanus-McManus has been employed by
Jacqueline Silverman & Associates, Inc. (Associates), as an
associate appraiser. Before that, she held several positions
with the Museum of Contemporary Art, Los Angeles, and,
since 2009, she has been an adjunct professor at the New
York University School of Continuing & Professional Studies,
teaching a course entitled ‘‘Essentials of Appraising’’ for
which she developed the course materials. She has a B.A.
degree in art history from the University of California, Los
Angeles, and two M.A. degrees (in art history and museum
studies) from Syracuse University. Since 1977, her employer,
Associates, has specialized in the appraisal of modern and
contemporary art, preparing thousands of appraisals in
numerous contexts including appraisals for estate tax pur-
poses, donations to museums, and legal disputes. Ms. Hanus-
McManus has also conducted a study on secondary markets
for fractional interests in art. She is the sole author of her

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 (86) ESTATE OF ELKINS v. COMMISSIONER 105

written report in this case, although she conferred with Jac-
queline Silverman, president of Associates, who edited, proof-
read, and cosigned the report. The Court accepted Ms.
Hanus-McManus as an expert appraiser of modern and
contemporary art and received her written report into evi-
dence as her direct testimony.
Ms. Hanus-McManus testified that the market for modern
and contemporary art operates on two levels: the primary
market, created by the artist or his or her agent, and the sec-
ondary market, controlled by art galleries and dealers and
auction houses. On the basis of (1) Associates’ more than 30
years’ experience observing the primary and secondary mar-
kets for modern and contemporary art, (2) conversations with
art gallery personnel, dealers, auction houses, banks, and art
world professionals, and (3) her survey of 40 art dealers and
galleries in New York, Los Angeles and other U.S. cities, Ms.
Hanus-McManus concludes that ‘‘there is no established
marketplace for the sale of a partial interest in a work of
art.’’ She notes that there are dealer-to-dealer sales of frac-
tional interests in art in what she refers to as ‘‘the wholesale
market’’ but that such a sale would be made in connection
with an agreement between the dealers to sell the whole
work at a profit and split the proceeds. She further concludes
that, while there are sales of fractional interests in art, they
involve coowners who intend to sell or donate the entire work
of art at a later date and, therefore, are not germane to the
hypothetical sale of fractional interests in this case. She
admits, however, to having no experience with the buying or
selling habits of pure speculators who deal in art without
regard to its aesthetic quality.
John R. Cahill
John R. Cahill is an attorney practicing in New York as a
partner in the law firm Lynn & Cahill. More than 80% of his
practice is devoted to legal matters concerning clients
involved in art including auction houses, museums, artists,
art galleries, art collectors and dealers, appraisers, banks,
insurance companies, and foundations. He represents clients
in both litigation and transactional planning and counsels
them on a variety of art-related matters. He also chairs the
Art Law Committee of the New York City Bar Association.

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 106 140 UNITED STATES TAX COURT REPORTS (86)

The Court accepted Mr. Cahill as an expert in art trans-
actions and received his written report into evidence as his
direct testimony.
On the basis of caselaw and his own observations of
museum-related and commercial transactions involving joint
ownership of art, Mr. Cahill concludes: ‘‘In my opinion, the
Sale Restriction and related terms in the Cotenant’s Agree-
ment, Amendment to Cotenants Agreement and Art Lease
are not comparable to similar arrangements entered into by
persons in arms length art market transactions.’’ 8

OPINION

I. Introduction
We must determine the fair market value of decedent’s
interest in each of 64 works of art for Federal estate tax pur-
poses. Those interests were included in decedent’s gross
estate and reported on decedent’s estate tax return at a total
value of $12,149,650. On the basis of the expert testimony of
three experts, and, in particular, Mr. Mitchell’s expert testi-
mony, petitioners now argue that that total value must be
reduced to $7,658,645. The parties have stipulated that the
total, undiscounted fair market value of the art on the valu-
ation date was $35,180,650 ($24,580,650 for the disclaimer
art and $10,600,000 for the GRIT art), and respondent bases
his proposed deficiency herein on his view that that
undiscounted value, to the extent it is allocable pro rata to
decedent’s interest in each of the 64 works of art (i.e., to the
extent of 73.055% of the disclaimer art, or $17,957,393, and
50% of the GRIT art, or $5,300,000, a total of $23,257,393 9),
8 Mr.
Cahill’s conclusion supports respondent’s argument that the sale
restrictions in the cotenants’ agreement and the art lease do not satisfy the
requirements of sec. 2703(b)(3). That provision constitutes one of the three
requirements of the sec. 2703(b) exception to the application of sec.
2703(a)(2), which generally mandates that ‘‘any restriction on the right to
sell or use * * * property’’ be ignored in determining the value of any
property for estate and gift tax purposes. See discussion infra. Petitioners
concede that neither the cotenants’ agreement nor the art lease satisfies
the sec. 2703(b) exception. Therefore, we agree with petitioners that Mr.
Cahill’s report is not germane to the issues in this case.
9 On brief, respondent argues that the total stipulated fair market value

of decedent’s interests in the art on the valuation date is $23,788,504. But,
given the parties’ stipulated agreement that the value of 100% of the art

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 (86) ESTATE OF ELKINS v. COMMISSIONER 107

constitutes the value of decedent’s interests in the art for
Federal estate tax purposes.
II. Burden of Proof
In general, a taxpayer bears the burden of proof. Rule
142(a)(1). However, section 7491(a) shifts the burden of proof
to the Commissioner in certain situations if the taxpayer
raises the issue, introduces credible evidence with respect to
any factual issue relevant to ascertaining the proper tax
liability, and demonstrates compliance with the applicable
requirements of section 7491(a)(2).
The parties stipulate that the estate has satisfied the sec-
tion 7491(a)(2) requirements, and petitioners argue that,
through the expert testimony of Messrs. Nash, Miller, and
Mitchell and through Ms. Sasser’s testimony, they have pre-
sented credible evidence of value, thereby shifting the burden
of proof to respondent pursuant to section 7491(a).
Because we base our decision regarding the value of
decedent’s interests in the art upon a preponderance of the
evidence, it is not necessary that we assign the burden of
proof. See, e.g., Estate of Black v. Commissioner, 133 T.C.
340, 359 (2009); Estate of Bongard v. Commissioner, 124 T.C.
95, 111 (2005). 10

on that date was $35,180,650 divided between $10,600,000 for the GRIT
art and $24,580,650 for the disclaimer art, the undiscounted fair market
value of decedent’s interests in the art cannot exceed $23,257,393 (50% of
$10,600,000, or $5,300,000, plus 73.055% of $24,580,650, or $17,957,393).
Therefore, we view respondent’s argument for a greater stipulated value
for decedent’s interests in the art, presumably based upon the agent’s valu-
ations on audit, as an inadvertent oversight, and we give it no credence.
See supra note 3.
10 Although we agree with respondent that it is unnecessary to assign

the burden of proof, we reject respondent’s reliance on Estate of Jelke v.
Commissioner, T.C. Memo. 2005–131 (and cases cited therein), vacated and
remanded on another issue, 507 F.3d 1317 (11th Cir. 2007), as requiring
that result. In those cases, there was deemed to be no need to assign the
burden of proof because the operative facts were fully stipulated and sup-
plemented solely by expert witness testimony. Here, there is disputed fact
testimony furnished by Ms. Sasser.

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 108 140 UNITED STATES TAX COURT REPORTS (86)

III. Law
A. General Principles
Section 2001(a) imposes a tax on ‘‘the transfer of the tax-
able estate of every decedent who is a citizen or resident of
the United States.’’ Section 2031(a) provides: ‘‘The value of
the gross estate of the decedent shall be determined by
including to the extent provided for in this part, the value at
the time of his death of all property, real or personal, tan-
gible or intangible, wherever situated.’’
Fair market value is the standard for determining the
value of property for Federal estate tax purposes. United
States v. Cartwright, 411 U.S. 546, 550–551 (1973). Section
20.2031–1(b), Estate Tax Regs., defines fair market value as
‘‘the price at which the property would change hands
between a willing buyer and a willing seller, neither being
under any compulsion to buy or to sell and both having
reasonable knowledge of relevant facts.’’ It then states that
the fair market value of an item of property is not ‘‘to be
determined by the sale price of the item in a market other
than that in which such item is most commonly sold to the
public’’ and that, ‘‘in the case of an item of property includ-
ible in the decedent’s gross estate, which is generally
obtained by the public in the retail market, the fair market
value of such an item of property is the price at which the
item or a comparable item would be sold at retail.’’ The regu-
lation requires that ‘‘[a]ll relevant facts and elements of
value as of the applicable valuation date shall be considered
in every case.’’ The willing buyer and willing seller are hypo-
thetical persons, rather than specific individuals or entities,
and their characteristics are not necessarily the same as
those of the actual buyer or seller. See Estate of Newhouse
v. Commissioner, 94 T.C. 193, 218 (1990) (citing Estate of
Bright v. United States, 658 F.2d 999, 1006 (5th Cir. 1981)).
The hypothetical willing buyer and seller are presumed to be
dedicated to achieving the maximum economic advantage. Id.
B. Expert Opinions
In deciding valuation cases, courts often look to the opin-
ions of expert witnesses. Nonetheless, we are not bound by
the opinion of any expert witness, and we may accept or

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 (86) ESTATE OF ELKINS v. COMMISSIONER 109

reject expert testimony in the exercise of our sound judg-
ment. Helvering v. Nat’l Grocery Co., 304 U.S. 282, 295
(1938); Estate of Newhouse v. Commissioner, 94 T.C. at 217.
Although we may largely accept the opinion of one party’s
expert over that of the other party’s expert, see Buffalo Tool
& Die Mfg. Co. v. Commissioner, 74 T.C. 441, 452 (1980), we
may be selective in determining what portions of each
expert’s opinion, if any, to accept, Parker v. Commissioner, 86
T.C. 547, 562 (1986). Finally, because valuation necessarily
involves an approximation, the figure at which we arrive
need not be directly traceable to specific testimony if it is
within the range of values that may be properly derived from
consideration of all the evidence. Estate of True v. Commis-
sioner, T.C. Memo. 2001–167 (citing Silverman v. Commis-
sioner, 538 F.2d 927, 933 (2d Cir. 1976), aff ’g T.C. Memo.
1974–285), aff ’d, 390 F.3d 1210 (10th Cir. 2004).
C. Section 2703
As noted supra note 8: (1) section 2703(a)(2) provides that,
for estate and gift tax purposes, the value of any property is
determined without regard to any restriction on the right to
sell or use such property, (2) section 2703(b) provides that
section 2703(a) does not apply to disregard a right or restric-
tion if it meets certain requirements, and (3) petitioners con-
cede that neither the cotenants’ agreement nor the art lease
satisfies the section 2703(b) exception. Thus, the section 2703
issue herein is whether the restrictions on transferability in
the cotenants’ agreement and the art lease are restrictions
‘‘on the right to sell or use * * * property’’ within the
meaning of section 2703(a)(2). 11

11 Although the notice invokes both sec. 2703(a)(1) and (2) as alternative

bases for denying any discount in valuing decedent’s fractional interests in
the art, and although respondent generally invokes the application of sec.
2703, he emphasizes the application of sec. 2703(a)(2). In fact, because nei-
ther the cotenants’ agreement nor the art lease provides an option, agree-
ment, or other right to acquire property at a bargain price, sec. 2703(a)(1),
by its terms, is inapplicable. Therefore, the only sec. 2703 issue for our de-
cision is whether sec. 2703(a)(2) applies herein.

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IV. Summary of the Parties’ Arguments
A. Respondent
1. Introduction
Respondent argues that no discount from the pro rata fair
market value of decedent’s interest in each of the 64 works
of art is warranted. Respondent sets forth two grounds for
that argument: (1) the restrictions on sale in the cotenants’
agreement and the art lease are restrictions that must be
disregarded under section 2703(a)(2), and (2) because the
proper market in which to determine the fair market value
of fractional interests in works of art is the retail market in
which the entire work (consisting of all fractional interests)
is commonly sold at full fair market value, a fractional
interest holder (being entitled to a pro rata share of the sale
proceeds) is not entitled to any discount for his or her
interest.
2. Application of Section 2703(a)(2)
In support of the application of section 2703(a)(2)
respondent states:
In view of the irrefutable evidence that the only way to sell a frac-
tional interest in artwork is by selling the entire art by agreement or
through a partition action filed with the court, the only apparent reason
for including the restriction on sale language in the Cotenants’ Agree-
ment and the Art Lease Agreement * * * was to reduce the value of
Decedent’s retained fractional interests in the Artwork as part of a plan
to make a testamentary transfer of his remaining interests in the Art-
work to his children at a reduced transfer tax rate—a purpose which sec-
tion 2703 was specifically intended to prevent.

Respondent concludes that the restrictions on sale in para-
graph 7 of the cotenants’ agreement and section 10 of the art
lease ‘‘are restrictions that are controlled by section 2703’’
and, accordingly, they must be disregarded in determining
the value of decedent’s fractional interests in the art.
3. Use of Undiscounted Pro Rata Fair Market Value in Val-
uing Decedent’s Interests in the Art
In support of his valuation argument, in which he con-
cludes that no discount is warranted with respect to
decedent’s interests in the art, respondent states that the

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Elkins children’s opposition to any sale of the art ‘‘is not
material’’ in the light of section 20.2031–1(b), Estate Tax
Regs. In so arguing, respondent focuses on that regulation’s
admonition that ‘‘an item of property includible in the
decedent’s gross estate, which is generally obtained by the
public in the retail market’’, must be valued at ‘‘the price at
which the item or a comparable item would be sold at retail.’’
Respondent finds additional support for his view in the testi-
mony of Ms. Hanus-McManus, who concludes that, as of the
valuation date, ‘‘the sale of an undivided fractional interest
in a work of art was not an established practice in the art
market, and no service, venue or marketplace exists today for
an owner of an undivided fractional interest in a work of art
to sell his/her share in that work.’’
Respondent also cites Mr. Nash’s testimony that he could
not recall ever advising a client to sell a fractional interest
in art at a discount, and that he himself had never done so.
Respondent states, however, that ‘‘[j]ust because there is no
direct market for fractional interests in artwork * * * does
not mean that * * * fractional interests in artwork are not
bought and sold every day.’’ Respondent concludes that the
lack of evidence of discounted sales of fractional interests in
art supports his position that ‘‘fractional interests in artwork
are only sold as part of a sale where the entire interest in
the artwork is sold’’, typically by coowners who know each
other and who act in concert when purchasing and selling
their respective fractional interests, either by direct sale to
a buyer who acquires 100% ownership of the art or,
assuming coownership of several works, after a partition in
kind or by sale. In either event, the sale results (or, if several
works are involved, the sales result) in a fair market value
price, and each coowner receives a pro rata share of the pro-
ceeds. Thus no fractional interest discounts are warranted.
Respondent does note that, in the case of a particularly
valuable item of personal property, ‘‘a stranger/speculator
could perhaps be found to buy a fractional interest * * * for
a deeply discounted price.’’ He argues, however, that ‘‘this
type of a transaction simply does not occur and even if there
have been a few of these unrecorded transactions’’, they do
not reflect the retail market in which we are required to
value decedent’s fractional interests in the art pursuant to
section 20.2031–1(b), Estate Tax Regs.

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Although his principal argument is that, as a matter of
law, no discount is permissible in valuing undivided frac-
tional interests in art, respondent also argues that, as a fac-
tual matter, petitioners’ proffered discounts are unsupported
by the evidence; i.e., by the testimony of their three experts.
He views Mr. Nash’s discounts as having been based on
unrealistic scenarios, faulty methodology, and a failure to
properly account for the interests of the hypothetical seller
by improperly positing the seller’s position in the context of
a forced sale. Because he views Mr. Nash’s proposed dis-
counts as without any justifiable basis, respondent concludes
that they are essentially guesses.
He argues that, by referring to ‘‘general court statistics’’
not specific to the timespan for partition actions relating to
art and by basing his opinions on a ‘‘worst case scenario’’,
Mr. Miller overstated both the time for and costs of a parti-
tion action with respect to the art. Respondent further
argues that Mr. Miller, because he was instructed to consider
partition-related costs in terms of a separate partition action
for each work of art, improperly failed to consider the likeli-
hood of and the costs associated with a single action for
partitioning the entire collection in kind. On a more funda-
mental level, respondent rejects the notion of any discount
from fair market value based upon anticipated partition
costs, arguing that such costs are selling expenses, which, if
shown to exist, may constitute deductible administration
expenses under section 2053(a).
He criticizes Mr. Mitchell’s valuations principally on the
ground that Mr. Mitchell considered the hypothetical buyer
of decedent’s interests in the art to be a speculator, uninter-
ested in obtaining the psychic benefits of owning art,
thereby, eliminating ‘‘approximately 60 percent of the value
of the Artwork that a normal purchaser would pay for the
Artwork.’’
Finally, respondent argues that a determination that a dis-
count is appropriate in valuing decedent’s fractional interests
in the art would be inconsistent with the Commissioner’s
longstanding position that fractional interests in art are not
discounted for purposes of valuing charitable contributions
thereof under section 170. See, for example, Rev. Rul. 58–
455, 1958–2 C.B. 100, and Rev. Rul. 57–293, 1957–2 C.B.
153, both of which involve the transfer of either a fractional

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interest or a remainder interest in a work of art to a section
170(c) organization, and both of which determine the value
of the gift without requiring any discount.
B. Petitioners
1. Application of Section 2703(a)(2)
Petitioners argue that section 2703(a)(2) does not apply to
the cotenants’ agreement because paragraph 7 thereof
restricts only the sale of any of the 62 works of art covered
by that agreement (cotenant art). It does not restrict the sale
of a cotenant’s or coowner’s fractional interest in the work,
and it is decedent’s fractional interests in the cotenant art,
not the art itself, that must be valued for Federal estate tax
purposes.
As respondent notes in his opening brief, petitioners do not
oppose the application of section 2703(a)(2) to the two works
of GRIT art subject to the art lease (leased art); i.e., they do
not argue that the restriction on sale provision in section 10
of the art lease gives rise to a discounted value for those two
works. Petitioners’ failure to so argue is based, presumably,
on the fact that that restriction (unlike the restriction in
paragraph 7 of the cotenants’ agreement) is a restriction on
the sale of each party’s ‘‘percentage interest in’’ the two
works; i.e., it is a restriction, on the right to sell property
that must be valued for Federal estate tax purposes. We
interpret petitioners’ silence in this regard as an admission
that, pursuant to section 2703(a)(2), we must value
decedent’s interests in the leased art without regard to the
restriction on sale provision in section 10 of the art lease.
2. Propriety of Petitioners’ Discounts With Respect to the
Art
Petitioners argue that they have fully supported the dis-
counts they seek herein for decedent’s interests in the art as
they have ‘‘provided extensive evidence of facts that would be
known to a hypothetical willing buyer and * * * seller with
reasonable knowledge of relevant facts, as required by * * *
[section 20.2031–1(b), Estate Tax Regs.]’’. Petitioners reject
respondent’s assertion that any discount would contravene
the cited regulation. They argue that ‘‘Mr. Mitchell’s valu-
ation conclusions fully take into account the risks and

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 114 140 UNITED STATES TAX COURT REPORTS (86)

impairments to value’’ inherent in the hypothetical buyer’s
alternative options (i.e., option 1: hold the purchased frac-
tional interest for enjoyment, appreciation, and eventual sale
of the art; option 2: institute an immediate partition action
against the Elkins children), and that ‘‘he properly relied on
the expert reports of Mr. Nash and Mr. Miller in doing so.’’
Petitioners argue that caselaw (and, in particular, caselaw
arising in the Court of Appeals for the Fifth Circuit, to which
an appeal of this case normally would lie) mandates the
application of discounts when valuing fractional interests in
personal property, including art. Petitioners also argue that,
in determining the appropriate valuation discount, the cases
take into consideration anticipated costs associated with a
partition of the property.
Presumably in defense of Mr. Miller’s cost analysis based
upon a separate partition action for each work of art, peti-
tioners state that the applicable regulations mandate that
decedent’s fractional interest in each work be valued sepa-
rately, citing section 20.2031–1(b), Estate Tax Regs. (value
determined with reference to ‘‘each unit of property’’), and
section 20.2031–6(a), Estate Tax Regs. (stating the need to
provide a separate valuation for ‘‘each article’’ of household
and personal effects). Therefore, petitioners conclude that
decedent’s fractional interests in the art ‘‘cannot be valued
* * * as a collection; separate hypothetical buyers and
sellers must be posited for each Work.’’ They further state
that, because the art does not form ‘‘a cohesive collection
* * * [with a] unifying theme, there is no factual basis * * *
for assuming that a single buyer would be interested in pur-
chasing all of the art.’’
V. Analysis
A. Application of Section 2703(a)(2) to the Cotenant Art
1. Introduction
Should we determine that the restriction on sales of coten-
ant art in paragraph 7 of the cotenants’ agreement con-
stitutes a restriction on the right to sell or use ‘‘property’’
within the meaning of section 2703(a)(2), we must disregard
that restriction in valuing decedent’s interests in that art.

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2. Analysis
As noted supra, respondent argues that the foregoing
restriction on sales of cotenant art constitutes a restriction
that must be disregarded under section 2703(a)(2) on the
ground that ‘‘the only apparent reason for * * * [its inclusion
in the cotenants’ agreement] was to reduce the value of
Decedent’s retained fractional interests in the Artwork as
part of a plan * * * [to reduce estate taxes]’’, which
respondent characterizes as ‘‘a purpose which section 2703
was specifically intended to prevent.’’
The evidence with respect to intent is inconclusive. The co-
tenants’ agreement was entered into in February 2000, six
years before decedent’s death in February 2006, and para-
graph 7 may have been intended only to keep the art in the
family unless there was a work that no one wished to retain.
Of greater significance, however, is the fact that section
2703(a)(2) does not refer to intent as a controlling or even
relevant factor. The only question is whether the property to
be valued, for estate or gift tax purposes, is subject to a
restriction on sale or use.
Petitioners argue that, because paragraph 7 of the coten-
ants’ agreement does not restrict the sale of decedent’s frac-
tional interests in the cotenant art (the property to be valued
for estate tax purposes), section 2703(a)(2) is inapplicable. In
connection with that argument, petitioners point to the
definitional reference to the term ‘‘property’’ in the cotenants’
agreement, which, in pertinent part, states that ‘‘[e]ach co-
tenant is the owner of an undivided interest in each item of
property described in Exhibit A [listing the works of art]
* * * (hereinafter, all of such property or any part thereof
shall be referred to as the ‘Property’)’’. Petitioners argue that,
although ‘‘property’’ under the foregoing definition ‘‘could
refer to one, several, or all of the 62 Works in their entirety,
under no interpretation does * * * [it] refer to a fractional
interest in the Works.’’ Respondent disagrees. He reads the
foregoing language, and, in particular, the reference to ‘‘any
part’’ of the property as a reference to the cotenants’ undi-
vided fractional interests in the cotenant art.
We think that both petitioners’ and respondent’s analyses
miss the mark. During trial, we queried Mr. Miller, peti-
tioners’ expert on partition, about paragraph 7 of the coten-

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 116 140 UNITED STATES TAX COURT REPORTS (86)

ants’ agreement. We pointed out to him that, for a sale of
any of the jointly owned properties (i.e., works of art) to
occur, all of the cotenants would have to agree, and that
would be so independent of the language of paragraph 7 of
the cotenants’ agreement. He agreed. We added: ‘‘So that the
statement that an item of property may only be sold with the
unanimous consent of all of the cotenants is a rather
unremarkable statement of the obvious.’’ He responded: ‘‘I do
agree.’’ With respect to what the language of paragraph 7
accomplished, he testified: ‘‘If this language was not in the
co-tenancy agreement, any individual interest owner would
have the right to commence a partition action.’’ That is in
accord with his direct, written testimony, wherein he states
that the right to partition is absolute, although cotenants
may expressly or impliedly agree not to partition, and that
he has ‘‘assumed that Provision 7 * * * is, in essence, an
agreement by the Co-Owners not to partition.’’ With excep-
tions not here relevant, section 2703(a)(2) instructs that ‘‘the
value of any property shall be determined without regard to
* * * any restriction on the right to sell or use such prop-
erty.’’ Whether paragraph 7 of the cotenants’ agreement is a
restriction on decedent’s right to sell the cotenant art or is
a restriction on his right to use the cotenant art is not impor-
tant. It is clear that, pursuant to paragraph 7 of the coten-
ants’ agreement, decedent, in effect, waived his right to
institute a partition action, and, in so doing, he relinquished
an important use of his fractional interests in the cotenant
art. While, as we shall explain, it makes little or no dif-
ference to our conclusion as to the value of the art, we shall,
in determining the value of each of the items of cotenant art,
disregard any restriction on decedent’s right to partition.
3. Conclusion
We hold that section 2703(a)(2) is applicable to the restric-
tion, in paragraph 7 of the cotenants’ agreement, on sales of
cotenant art.

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B. Whether and the Extent to Which the Estate Is Entitled
To Discount Decedent’s Interests in the Art
1. Introduction
Our determination that section 2703(a)(2) negates the
restriction on sales of cotenant art in paragraph 7 of the co-
tenants’ agreement, coupled with petitioners’ concession that
section 2703(a)(2) negates the restriction on sales of the les-
sor’s and lessee’s interests in the leased art contained in sec-
tion 10 of the art lease, leaves the hypothetical willing seller
and buyer in the same negotiating position with respect to
decedent’s interests in all 64 works of art. That is because,
as a result of those section 2703(a)(2) determinations, neither
the cotenants’ agreement nor the art lease may be read as
restricting the hypothetical seller’s right to sell decedent’s
interests in the subject art, but the hypothetical buyer’s
ability to monetize those interests on an undiscounted basis
remains subject either to the coowners’ (i.e., the Elkins chil-
dren’s) agreement to a sale of the underlying art and a pro
rata splitting of the proceeds of sale or to the need to
institute a partition action in order to achieve that result. 12
In resolving the parties’ dispute over the proper valuation
of decedent’s interests in the art, we first address the ques-
tion of whether any discount from pro rata fair market value
is permissible under section 20.2031–1(b), Estate Tax Regs.,
and, if the answer to that question is yes, we must then
determine the proper amount, if any, of that discount.
2. Whether Any Discount Is Permissible
a. Analysis
Respondent’s argument that no discount is warranted in
valuing decedent’s fractional interests in the art is premised
12 The parties have not addressed whether the hypothetical seller would

constitute a ‘‘successor’’ to decedent’s interests in the disclaimer art and
the leased art pursuant to sec. 8 of the cotenants’ agreement and sec. 13
of the art lease. Nor have they addressed how the hypothetical seller’s sta-
tus as such might affect the value of his or her interests in the art. We
do not consider that to be a significant valuation issue, however, because,
whether or not the hypothetical seller constitutes a ‘‘successor’’ to dece-
dent’s interests under either agreement, no sale of the underlying art can
occur without either the consent of the Elkins children, which, presumably,
would not be forthcoming, or a successful partition action.

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essentially on his view that, (1) under section 20.2031–1(b),
Estate Tax Regs., the fair market value of tangible personal
property must be determined with reference to the market in
which the property is most commonly sold to the public and,
(2) in the case of art, that market is the retail market
whereby all fractional interest holders agree to sell (or sell
after a partition action) the underlying art, i.e., where the art
is sold for its undiscounted fair market value, after which
each fractional interest holder receives his or her pro rata
share of the proceeds.
In support of his position, respondent cites Estate of Scull
v. Commissioner, T.C. Memo. 1994–211, and Stone v. United
States, 99 A.F.T.R.2d (RIA) 2007–2992 (N.D. Cal. 2007),
supplemented by 100 A.F.T.R.2d (RIA) 2007–5512 (N.D. Cal.
2007), aff ’d, Stone ex rel. Stone Trust Agreement v. United
States, 103 A.F.T.R.2d (RIA) 2009–1379 (9th Cir. 2009).
In Stone, the District Court rejected the plaintiffs’ prof-
fered 44% fractional interest discount for the decedent’s 50%
interest in 19 paintings on the ground that a hypothetical
seller would seek to sell each entire work of art (with the co-
owners’ consent or via partition) and take his or her pro rata
share of the proceeds or sell the partial interest at a price
equivalent thereto. On that basis, the District Court con-
cluded that, ‘‘because an undivided interest holder has the
right to partition, a hypothetical seller under no compulsion
to sell would not accept any less for his or her undivided
interest than could be obtained by splitting proceeds in this
manner.’’ Stone, 99 A.F.T.R.2d (RIA) at 2007–2996. The Dis-
trict Court did, however, decide that ‘‘some discount is appro-
priate to allow for the uncertainties involved in waiting to
sell the collection until after a hypothetical partition action
is resolved’’. Id. at 2007–2998 (citing Estate of Scull v.
Commissioner, T.C. Memo. 1994–211). In its supplemental
opinion, the District Court determined that the ‘‘relatively
low’’ 5% discount proposed by the Government was appro-
priate in the absence of proof by the plaintiffs that they were
entitled to more than a 2% discount to account for selling
costs plus a $50,000 discount to account for the hypothetical
seller’s legal fees in connection with any partition action.
Moreover, the District Court was not persuaded that a hypo-
thetical buyer would refuse to buy the decedent’s interest in

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the collection unless the discount were greater than 5%.
Stone, 100 A.F.T.R.2d (RIA) at 2007–5514.
In Estate of Scull, the decedent died owning a 65% undi-
vided interest in a ‘‘pop’’ and minimalist art collection that
he and his wife had accumulated before their divorce. In
connection with divorce-related litigation in the New York
State courts, there was a court-ordered in-kind division of
the collection (65% to the decedent, 35% to Mrs. Scull) that
did not go into effect before the decedent’s death. Thirty days
after the decedent’s death, Mrs. Scull appealed that decision,
seeking a 50% share of the collection. Just before his death,
the decedent had also appealed an earlier New York State
appellate court decision sustaining the imposition of
constructive trusts on the collection for Mrs. Scull’s benefit.
The estate argued that the value of the decedent’s 65%
interest in the collection was less than 65% of the entire
collection. We noted that ‘‘[a]ny purchaser of * * * [the
estate’s] interest in the collection as of * * * [the date of the
decedent’s death] would consider * * * [Mrs.] Scull’s rights
in the collection and * * * [the decedent’s] pending appeal on
the date of death.’’ We then stated as follows:
However, since * * * [the decedent’s] appeal, if successful, would have
increased his share, that appeal does not provide any basis for a reduc-
tion. Moreover, since * * * [Mrs.] Scull’s appeal came later, it probably
should not be taken into account. In any event, given the trial court’s
detailed explanation of its basis for its determination of the 65–35 split,
we think that a purchaser would not require a reduction in excess of 5
percent for any uncertainties involved in acquiring decedent’s 65-percent
interest, despite one or both appeals. * * *

Thus, on the facts of that case, we allowed a 5% valuation
discount from pro rata fair market value.
We fail to see how either Stone or Estate of Scull supports
respondent’s position. In both cases, the court approved a dis-
count from pro rata fair market value for the decedent’s frac-
tional interest in an art collection in order to account for var-
ious uncertainties that would confront a hypothetical buyer
of the art. Although the 5% discount approved in each case
was essentially nominal, that was because of a lack of proof
that any greater discount was warranted, not because of any
regulatory prohibition against discounts for art that is nor-
mally sold at retail. Moreover, the District Court in Stone
agreed with the plaintiffs that, ‘‘contrary to the government’s

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assertions, the costs of a court-ordered partition must be
considered in determining the fair market value of the
Estate’s interest in the collection.’’ Stone, 99 A.F.T.R.2d (RIA)
at 2007–2997. That position was based, primarily, on the
District Court’s view that it could not ‘‘assume that the
Estate’s co-owner in the [art] collection [the estate’s trustees
actually owned the entire collection] would agree either to a
sale of the collection as a whole or to a division of the nine-
teen paintings among the co-owners.’’ Id. at 2007–2997
through 2007–2998. The District Court’s refusal to person-
alize the circumstances surrounding a hypothetical sale was
based upon the admonition of the Court of Appeals for the
Ninth Circuit in Propstra v. United States, 680 F.2d 1248,
1251–1252 (9th Cir. 1982), that the willing seller must be ‘‘a
hypothetical seller rather than the estate or any of decedent’s
beneficiaries’’ and that defining fair market value in terms of
that ‘‘objective standard’’ will serve to avoid
the uncertainties that would otherwise be inherent if valuation methods
attempted to account for the likelihood that estates, legatees, or heirs
would sell their interests together with others who hold undivided
interests in the property. Executors will not have to make delicate
inquiries into the feelings, attitudes, and anticipated behavior of those
holding undivided interests in the property in question. * * *

Accord Estate of Bonner v. United States, 84 F.3d 196, 198
(5th Cir. 1996); Estate of Bright v. United States, 658 F.2d
at 1006; 13 see also Holman v. Commissioner, 601 F.3d 763,
775 (8th Cir. 2010), aff ’g 130 T.C. 170 (2008).
In this case, not only, as stated by the District Court in
Stone, 99 A.F.T.R.2d (RIA) at 2007–2998, are we not entitled
to assume that the Elkins children ‘‘would agree either to a
sale of * * * [the art] or to a division * * * [thereof] among
13 Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982), and Estate

of Bright v. United States, 658 F.2d 999 (5th Cir. 1981), both constitute
a rejection of the ‘‘family attribution’’ or ‘‘unity of ownership’’ principle,
which takes into account the close relationship among the decedent, execu-
tor, or legatee, on the one hand, and the other coowners of real or personal
property, on the other hand, in valuing the decedent’s minority interest in
the property. The Government’s argument, rejected by the Court of Ap-
peals for the Ninth Circuit in Propstra, was that, in the absence of a show-
ing that such parties, if related, were likely to sell their interests sepa-
rately, ‘‘one can reasonably assume’’ that those interests, including the de-
cedent’s interest, will be sold as a unit. Propstra, 680 F.2d at 1251–1252.

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 (86) ESTATE OF ELKINS v. COMMISSIONER 121

the co-owners’’, but, unlike the circumstances in Propstra and
Estate of Bright, we are presented with unchallenged facts
demonstrating that the Elkins children had strong senti-
mental and emotional ties to each of the 64 works of art so
that they treated the art as ‘‘part of the family’’. Those facts
strongly suggest that a hypothetical buyer of decedent’s frac-
tional interests in the art would be confronted by coowners
who were resistant to any sale of the art, in whole or in part,
to a new owner, a resistance that the Elkins children specifi-
cally communicated to Mr. Nash. In this case, it is not nec-
essary for the executors to speculate or ‘‘make delicate
inquiries into the feelings, attitudes and anticipated
behavior’’ of the other owners. It is clear that they have a
deep and abiding love for the art and, therefore, could be
expected to be hostile to a joint sale of any one or all of the
64 works to a new owner, a hostility that they explicitly
expressed to Mr. Nash during their meeting with him pre-
paratory to his inspection of the art. That being so, the hypo-
thetical seller and buyer necessarily would be faced with
uncertainties regarding the latter’s ability to monetize his or
her investment in the art. As in Stone, ‘‘some discount is
appropriate to allow for * * * uncertainties’’. Stone, 99
A.F.T.R.2d (RIA) at 2007–2998.
We also reject respondent’s argument that consideration of
the Elkins children’s probable hostility to any sale of the art
to a new owner violates the requirement to consider the
hypothetical, not the actual, seller. The Elkins children, as
coowners of the art, would not be the sellers of decedent’s
interests therein and cannot be viewed as such. Their hos-
tility would be to any sale to a new owner of one or more of
the works in which they, like the hypothetical seller, owned
a fractional interest. That probable hostility constitutes one
of the ‘‘relevant facts and elements of value as of the * * *
valuation date [that] shall be considered [by the hypothetical
seller and buyer] in every case’’, as mandated by section
20.2031–1(b), Estate Tax Regs.
As noted supra, respondent’s no-discount argument is pre-
mised upon the requirement in section 20.2031–1(b), Estate
Tax Regs., that the value of ‘‘an item of property * * * gen-
erally obtained by the public in the retail market * * * is the
price at which the item or a comparable item would be sold
at retail.’’ Respondent describes the market for fractional

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interests in art (as well as for other types of personal prop-
erty) as one in which the holder of the fractional interest
either purchases or inherits the interest under circumstances
in which the holder and the other coowners (who may be
family members, friends, or, in the case of art, art dealers)
hold, or simultaneously acquire, their interests with a shared
goal of selling (or, if the fractional interests are purchased,
of reselling) the entire item of property at retail, either
directly or after a partition of the property. Respondent
posits that, under any of those scenarios, the interest holders
would each receive a pro rata share of the property or of the
proceeds from the sale thereof, and no fractional discounts
would be applied. Focusing specifically on the facts of this
case, respondent argues that it would be in the financial
interests of both the Elkins children and the hypothetical
buyer to agree to (1) sell the art and divide the proceeds pro
rata, (2) divide the art pro rata, or (3) some combination of
those two alternatives, none of which would entail a frac-
tional interest discount. Respondent cites Holman v.
Commissioner, 601 F.3d at 775, and its affirmation of
caselaw describing the hypothetical buyer and seller as
rational economic actors lacking ‘‘motivations that are per-
sonal and reflective of the idiosyncracies of particular
individuals.’’
Although respondent’s approach to the valuation of per-
sonal property would have merit in the absence of ‘‘relevant
facts’’ that would render that approach unrealistic and,
therefore, inapplicable, here such facts exist in the form of
the Elkins children’s probable resistance to any sale or parti-
tion of the art that would result in new ownership; and
although, by opposing such a sale, the Elkins children might
not be acting in their best economic interests, 14 they
undoubtedly would view continued retention of the entire
collection as acting (to paraphrase Mr. Mitchell) in their best
psychic interests; i.e., they would be willing to forgo the
financial gain from a sale of the art in order to keep the
collection intact and continue to enjoy it.
14 It
is, of course, possible that, by holding on to the art, subsequent ap-
preciation of one or more works would allow the fractional interest holders
to realize a greater economic benefit than would have resulted from an im-
mediate sale of the art at its fair market value on the valuation date.

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We do not interpret section 20.2031–1(b), Estate Tax Regs.,
as mandating reference to the retail market for entire works
of art in determining the fair market value of decedent’s frac-
tional interests in the art. As both Mr. Nash (implicitly) and
Ms. Hanus-McManus (explicitly) agree, there is no market
(retail or otherwise) in which undivided fractional interests
in art are ‘‘commonly sold to the public’’. Secondly, the pros-
pect of a fair market value sale of the art followed by a pro
rata division of the proceeds among the coowners is mani-
festly uncertain in this case. The fact that there exists a
retail market for works of art with multiple owners does not
necessarily mean that all fractional interests in art must be
valued as if it is certain that the art will be sold in that
market. The regulation should not be read in a vacuum,
without reference to actual circumstances. See, e.g., Estate of
Baird v. Commissioner, T.C. Memo. 2001–258 (agreeing to
‘‘an increased discount’’ in valuing the decedent’s interest in
jointly owned timberland because of the uncertainty of
whether the family-member coowners would force a hypo-
thetical willing buyer to institute a partition action with
respect to the property); Estate of Lauder v. Commissioner,
T.C. Memo. 1994–527 (approving a 40% discount for lack of
liquidity with respect to the decedent’s interest in a family-
owned corporation on the basis of a finding that the coshare-
holder family members intended to maintain the company
‘‘as a privately held, family-controlled company’’ thereby ren-
dering the sale of the decedent’s shares on a public market
‘‘remote’’).
Moreover, respondent’s approach ignores the willingness of
the courts in Stone and Estate of Scull to permit discounts
for fractional interests in art, provided there is adequate
proof of entitlement thereto. Respondent also ignores prece-
dent in the Court of Appeals for the Fifth Circuit permitting
valuation discounts for fractional interests in property. E.g.,
Estate of Bonner, 84 F.3d 196; Estate of Bright, 658 F.2d 999.
We also reject respondent’s argument that partition costs
may be deductible as administration expenses under section
2053(a)(2) but may not be cited as justification for a valu-
ation discount. To begin with, respondent’s position is
directly contrary to the caselaw permitting discounts in the
light of uncertainties regarding the possibility of and/or costs
associated with partition actions. E.g., Estate of Bonner, 84

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F.3d at 197–198; Estate of Baird v. Commissioner, T.C.
Memo. 2001–258; Stone, 99 A.F.T.R.2d at 2007–2997, 2007–
2999; accord Estate of Baird v. Commissioner, 416 F.3d 442,
452–453 (5th Cir. 2005) (citing Estate of Bonner, 84 F.3d at
197–198), rev’g T.C. Memo. 2002–299. Secondly, the antici-
pated expense of a partition action is not an anticipated
expense of the estate’s sale of property to be valued. Rather,
as petitioners note, it is an expense that the hypothetical
buyer might have to incur after purchasing that property. As
we have held, such costs are costs that a potential buyer
would have to ‘‘take into account in determining the price he
would be willing to pay. This, of course, is consistent with
the definition of fair market value. See sec. 20.2031–1(b),
Estate Tax Regs.’’ Estate of Smith v. Commissioner, T.C.
Memo. 1993–236. Lastly, the cases upon which respondent
relies are inapposite. The court in each of those cases
rejected taxpayer claims that the fair market value of prop-
erty was the net amount received by the seller after payment
of excise taxes, sales commissions, or other expenses of sale
and held the fair market value to be the gross amount paid
by the buyer to the seller. See Estate of Smith v. Commis-
sioner, 57 T.C. 650, 659 (1972), aff ’d, 510 F.2d 479 (2d Cir.
1975); Estate of Gould v. Commissioner, 14 T.C. 414, 417
(1950); Payne v. United States, 35 A.F.T.R.2d 75–1623 (M.D.
Fla. 1975). The costs involved in each of those cases were the
seller’s costs associated with the sale whereas here, as we
have noted, the anticipated partition costs are anticipated
costs of the buyer, which are properly considered in deter-
mining fair market value. See Estate of Smith v. Commis-
sioner, T.C. Memo. 1993–236.
Lastly, we reject respondent’s argument that the Commis-
sioner’s rulings policy (reflected in both revenue rulings and
private letter rulings), whereby undiscounted pro rata fair
market value deductions are allowed for charitable contribu-
tions of fractional interests in art, controls the valuation of
decedent’s fractional interests in the art.
Respondent cites two revenue rulings in which the tax-
payer donated to a section 170(c) organization either all or a
portion of the taxpayer’s remainder interest in the art with
the taxpayer retaining sole right of possession for life, or an
undivided fractional interest in the art resulting in shared
possession. Those rulings state that the donor is entitled to

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a deduction for either the present value of the remainder
interest or for the undiscounted pro rata fair market value
of the undivided fractional interest transferred. See Rev. Rul.
58–455, supra; Rev. Rul. 57–293, supra. Respondent argues
that any discount in valuing fractional interests in art for
estate tax purposes would conflict impermissibly with the
position taken in the rulings.
We are not bound by revenue rulings, and the weight (if
any) that we afford them depends upon their persuasiveness
and the consistency of the Commissioner’s position over time.
Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202
(2009), aff ’d, 679 F.3d 1109 (9th Cir. 2012). In the earlier
ruling, the Commissioner does not provide a rationale for his
failure to discount (other than to present value) the value of
the charitable contributions of the remainder or fractional
interests in the art, and the later ruling cites only the prior
ruling as authority. In neither ruling is there any indication
of an impediment to a joint, fair market value sale of the art
or, if such an impediment does exist, that the Commissioner
took it into account. Moreover, in the light of precedent in
both this Court and the Court of Appeals for the Fifth Circuit
allowing discounts in valuing a fractional interest in property
for Federal estate tax purposes where there are potential
impediments to a fair market value sale of the interest (e.g.,
the possible need for a partition action), the rulings do not
persuade us to deny any discount for decedent’s fractional
interests in the art. 15
15 Petitioners distinguish the Commissioner’s ruling position on the

ground that it deals with income rather than estate taxes (a position that
finds support in Stone v. United States, 99 A.F.T.R.2d (RIA) 2007–2992,
2007–2997 n.9 (N.D. Cal. 2007), supplemented by 100 A.F.T.R.2d (RIA)
2007–5512 (N.D. Cal. 2007), aff ’d, Stone ex rel. Stone Trust Agreement v.
United States, 103 A.F.T.R.2d (RIA) 2009–1379 (9th Cir. 2009)) and on the
further ground that it should be interpreted as applying only to the ‘‘com-
mon situation’’ in which the donor ‘‘makes a series of fractional donations
and ultimately donates the entire work of art in full.’’ Neither effort to dis-
tinguish the Commissioner’s rulings from the facts of this case is persua-
sive. There is no basis for concluding that the term ‘‘value’’ has a meaning
for income tax purposes different from the one it has for estate tax pur-
poses, i.e., fair market value is fair market value (see sec. 1.170A–1(c)(1),
Income Tax Regs., which provides a definition of fair market value iden-
tical to that provided by sec. 20.2031–1(b), Estate Tax Regs.); and we fail
Continued

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 126 140 UNITED STATES TAX COURT REPORTS (86)

Respondent also cites two cases decided by this Court in
which we permitted undiscounted fair market value deduc-
tions for charitable contributions of, in one case, undivided
fractional interests in an art collection and, in the other case,
a collection of ‘‘antique stereoscopic’’ equipment and related
material. See Winokur v. Commissioner, 90 T.C. 733 (1988);
Mast v. Commissioner, T.C. Memo. 1989–119. In both cases,
the sole valuation issue was the undiscounted fair market
value of the collection, there being no dispute over the pos-
sible application of a pro rata deduction for the donated frac-
tional interest. The parties did not raise the issue of a frac-
tional interest discount, and we did not consider it. There-
fore, we do not view those cases as precedent for denying a
valuation discount in this case.
b. Conclusion
There is no bar, as a matter of law, to an appropriate dis-
count from pro rata fair market value in valuing, for estate
tax purposes, decedent’s undivided fractional interests in the
art.
3. The Extent to Which Petitioners Are Entitled To Discount
the Pro Rata Fair Market Value of Decedent’s Interests
in the Art
a. Introduction
Only petitioners’ valuation experts, Mr. Nash and Mr.
Mitchell (both of whom based their reports, in part, on Mr.
Miller’s expert testimony), analyze the extent to which a dis-
count from pro rata fair market value for decedent’s undi-
vided fractional interests in the art is warranted. Ms. Hanus-
McManus essentially opines that there is no market for an
undivided interest in art other than in connection with an
agreement or understanding among the coowners that they

to see the basis for petitioners’ assumption that respondent’s allowance of
an undiscounted fair market value deduction for the contribution of an un-
divided fractional interest in art (in Rev. Rul. 57–293, 1957–2 C.B. 153,
154–155, Ex. 2) is best read to apply to a situation in which the contribu-
tion was one in a series of contributions ultimately providing the donee
with complete ownership and possession of the art. Thus, although we de-
cline to apply the rulings to the facts of this case, we do so on grounds
other than those proffered by petitioners.

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will agree to a joint sale of the art at some future time. 16
Respondent offers her testimony solely in support of his
argument that no discount is warranted in valuing an undi-
vided fractional interest in art. As noted supra, Mr. Cahill
also does not address the subject of discounts, opining only
that the restrictions on sales of cotenant art ‘‘are not com-
parable to similar arrangements entered into by persons in
arms length art market transactions.’’ Respondent offers that
report solely in support of his application of section 2703 to
the cotenant art.
b. Analysis
Having decided that petitioners may introduce facts dem-
onstrating the estate’s entitlement to a discount from pro
rata fair market value for the art, the issue before us is
whether and to what extent we should sustain the discounts
proffered by Mr. Mitchell on the basis of the expert testi-
mony of Messrs. Nash and Miller.
The overriding flaw in Mr. Nash’s and (derivatively) Mr.
Mitchell’s analyses is their failure to consider not only the
Elkins children’s opposition to selling any of the art but also
their ownership position vis-a-vis that of the hypothetical
willing buyer and the impact that the 73.055–26.945 or 50–
50 ownership split would have on the negotiations between
seller and buyer. Both experts should have considered the
fact that the Elkins children, cumulatively, were entitled to
possession of 61 works of cotenant art for a little over three
months each year, and to possession of the three works of
GRIT art for six months of each year. 17 The relatively brief
16 Mr.
Nash is in apparent agreement with that conclusion, but he none-
theless opines that a collector or speculator might offer to purchase dece-
dent’s interests in the art at an appropriate discount, i.e., ‘‘at a price that
was deeply discounted from the actual market value to justify the risks in-
volved.’’
17 The Elkins children were before, and have been since, decedent’s

death content to leave all but the smaller works of art (which they have
rotated among themselves) in place in the Houston area (primarily in Mr.
and Mrs. Elkins’ family home) where each has ready access to all of the
art. Thus, despite their separate, individual rights of exclusive possession,
we assume for purposes of this analysis that possession by any one child
may be treated as possession by all three. Therefore, we consider their
rights of possession as a cumulative or combined right of possession, i.e.,
Continued

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 128 140 UNITED STATES TAX COURT REPORTS (86)

period of annual possession and the expense and inconven-
ience of annually moving the art from the hypothetical
buyer’s premises back to Houston most likely would have
caused the Elkins children to reassess their professed desire
to cling, at all costs, to the ownership status quo existing
after decedent’s death. Thus, the hypothetical buyer would be
in an excellent position to persuade the Elkins children, who,
together, had the financial wherewithal to do so, to buy the
buyer’s interest in any or all of the works, thereby enabling
them to continue to maintain absolute ownership and posses-
sion of the art. 18 Neither Mr. Nash nor Mr. Mitchell consid-
ered that possibility.
Ms. Sasser testified that, in the light of a relatively short
period of possession of the art to which she and her siblings
would be entitled vis-a-vis a hypothetical buyer, and consid-
ering that the buyer would, most likely, not reside in the
Houston area, she ‘‘would be willing to pay * * * a fair price’’
to purchase the hypothetical buyer’s 73.055% or 50%
interests in the art. Her testimony confirms what both the
hypothetical willing buyer and seller would reasonably sus-
pect during their negotiations: that the Elkins children’s
strong desire to retain possession of the art in place would
motivate them to purchase the hypothetical buyer’s interests,
most likely in each case for an amount equal or close to the
undiscounted fair market value of the interest. It defies logic
to assume that, as 27% or 50% owners and possessors of the
art, the Elkins children would spend millions of dollars to
retain their status as such, perhaps as defendants in mul-
tiple partition actions that could drag on for many years,
when they would be able to acquire 100% ownership and

26.945% (3 × 8.98167%) of each year for 61 works and 50% (3 × 16.667%)
of each year for three works.
18 During her testimony, Ms. Sasser suggested that, as a means of reduc-

ing the number of moves to which the art would be subject under the co-
tenants’ agreement, she might opt to revise the agreement so that the art
would be moved only once every three years, i.e., she and her siblings
could retain 61 works for some 9 months and 3 works for 18 months every
three years. But even if we assume that a hypothetical buyer would agree
to such an arrangement, the perennial back-and-forth movement of the art
would remain an expensive and undesirable option for the Elkins children.

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possession of the art, which, after all, is what they really
want. 19
Petitioners argue that the ‘‘fair price’’ referred to by Ms.
Sasser would not exceed ‘‘fair market value’’, meaning the
discounted values determined by Messrs. Nash and Mitchell.
We disagree. Ms. Sasser’s testimony confirms that the Elkins
children would be willing to purchase the hypothetical
buyer’s interests in the art at much higher prices than a dis-
interested buyer would be willing to pay for the same
interests because of the children’s added motivation of
keeping the art within the family as, in petitioners’ words, ‘‘a
memorial to their parents rather than [as] an investment’’.
That motivation is reflected in the following exchange:
Q: All right. So, most of the attachment to the art is as a memorial to
your parents, and it means more to you than money in this instance?
A: Yes, it does.

Ms. Sasser further testified that by a ‘‘fair price’’ she
meant the price determined by ‘‘an expert or somebody who
knew something about it’’. Then, during a subsequent col-
loquy between Ms. Sasser and the Court, Ms. Sasser shed
further light on what she considered to be a ‘‘fair price’’:
THE COURT: Now, I want you to explain to me why you would be reluc-
tant to sell * * * [the art], to sell your piece?
THE WITNESS: I guess honestly that I would be hoping that some day
that I could buy, or * * * [maybe] we could buy, me, my brother, and
sister, could buy the 73[%] back in some way.
THE COURT: Well, would you be willing to pay a pro rata portion, * * *
[73] percent, of the fair market value of the whole piece of art, of each
of the ones that you liked, to get back that * * * [73] percent interest
that somebody else had?

19 As
discussed infra, the Elkins children most likely would be willing to
pay a hypothetical buyer substantially more than the anticipated attor-
ney’s fees and related costs they would incur to oppose the buyer’s parti-
tion action simply because the outcome of a purchase by them would be
so much more satisfactory. Moreover, because of their desire to preserve
intact and continue to have uninterrupted access to the entire collection,
it is reasonable to assume that the Elkins children would be as motivated
to purchase the hypothetical buyer’s interests in Mr. Nash’s category III
works as they would be to purchase the buyer’s interests in Mr. Nash’s
category I and category II works. Indeed, Mr. Nash testified that he had
met with the Elkins children, who are ‘‘committed to retaining the art in
the family until the last * * * [of them] dies.’’

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 130 140 UNITED STATES TAX COURT REPORTS (86)

THE WITNESS: I would be willing to pay if somebody told me that it
was a fair price to get that, and I can’t say what is fair.

Later, in reference to a particular painting (Pool on Sprayed
Blue Paper by David Hockney), the following exchange took
place:
THE COURT: The Pool? Okay. They say that the sales value of it is
$900 thousand. Would you then be willing to pay * * * [73] percent of
that to get it back, assuming that you were convinced that was a fair
price?
THE WITNESS: If somebody who knew the art market assured me that
was a fair price, then yes, I would.

We infer from the foregoing exchange that the ‘‘fair price’’
Ms. Sasser was willing to pay was decedent’s pro rata share
of an expert-verified undiscounted fair market value of the
art, as exemplified by her willingness to pay 73% of the
$900,000 stipulated fair market value of the Hockney
painting were that still a ‘‘fair price’’. At the time she testi-
fied, Ms. Sasser obviously was aware of the sharply dis-
counted values posited by Messrs. Nash and Mitchell for
decedent’s interests in the art and of the fact that those
values were based upon the hypothetical buyer’s having to
confront the Elkins children’s unrelenting opposition to any
attempt by the buyer to employ a partition action to mone-
tize his or her investment in the art or to obtain full posses-
sion of a pro rata portion thereof, circumstances that she
knew were irrelevant to her (and her siblings’) potential pur-
chase of decedent’s interests, which would give them 100%
ownership of the art. Had she had those sharply discounted
values in mind when responding to the Court’s questioning,
she would not have left open the possibility that 73% of the
$900,000 undiscounted fair market value of the Hockney
painting might constitute a ‘‘fair price’’ for decedent’s interest
therein. Moreover, the hypothetical willing buyer and seller
would suspect the Elkins children’s willingness to pay pro
rata fair market value, or something close to it, and they
would price decedent’s interests in the art accordingly.
Therefore, we reject petitioners’ conclusion that a hypo-
thetical owner of decedent’s fractional interests in the art,
cognizant of the Elkins children’s ‘‘staying power’’, i.e., their
determination ‘‘to outlast any third party who attempted to
force a sale of a Fractional Interest by litigation’’, would have

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 (86) ESTATE OF ELKINS v. COMMISSIONER 131

to sell the art to the Elkins children at the sharply dis-
counted values determined by Messrs. Nash and Mitchell
‘‘because he or she could not expect to ‘out-negotiate’ the
Elkins Children and because no one else would offer any
more than * * * [those discounted] values.’’ We fail to see
the connection between the Elkins children’s so-called
staying power and the fair market value of decedent’s
interests in the art in the context of the children’s purchase
of those interests. Ms. Sasser testified that she would opt to
preserve her minority interests in the art, rather than mone-
tize those interests, but only on the assumption that she
could not ‘‘buy it back’’. Clearly, then, her preference (and,
presumably, that of her siblings) was to repurchase
decedent’s fractional interests in the art from the hypo-
thetical buyers, and we see no evidence that she or they
would limit their offer to an amount not in excess of the dis-
counted values posited by Messrs. Nash and Mitchell.
The actual bargaining position that a hypothetical buyer of
decedent’s interests in the art would have vis-a-vis the
interests of the Elkins children constitutes one of the ‘‘rel-
evant facts’’ that we must deem to be considered by a hypo-
thetical buyer and seller pursuant to section 20.2031–1(b),
Estate Tax Regs. See Estate of Winkler v. Commissioner, T.C.
Memo. 1989–231, where, in valuing a 10% block of voting
stock in a closely held corporation, we took into account the
fact that the hypothetical buyer thereof would represent the
‘‘swing vote’’ between the two families that owned the other
90% (50% and 40%) of the voting stock. On that basis, we
held that a buyer, unrelated to either family, ‘‘would be
willing to pay a premium for a 10 percent block of voting
stock that could be pivotal as between the two families’’ and
that ‘‘a minority discount would be inappropriate here.’’ See
also Estate of Andrews v. Commissioner, 79 T.C. 938, 956
(1982) (‘‘Certainly, the hypothetical sale should not be con-
structed in a vacuum isolated from the actual facts that
affect the value of the stock in the hands of the decedent[.]’’);
True v. United States, 547 F. Supp. 201, 203 (D. Wyo. 1982)
(‘‘Hypothetical analysis can be a valuable tool; however,
when real considerations exist, those realities should not and
cannot be ignored.’’).
The logic of assuming that the Elkins children would pay
a hypothetical buyer of decedent’s interests in the art more

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 132 140 UNITED STATES TAX COURT REPORTS (86)

than a disinterested collector or speculator would have paid
for those interests is also confirmed by cases recognizing that
certain properties possess an enhanced ‘‘assemblage’’ value.
See, e.g., Pittsburgh Terminal Corp. v. Commissioner, 60 T.C.
80, 90 (1973) (dicta: ‘‘[W]e do not quarrel with * * * [the tax-
payer’s] assertion that aggregation increases the value of coal
lands[.]’’), aff ’d without published opinion, 500 F.2d 1400 (3d
Cir. 1974); Serdar v. Commissioner, T.C. Memo. 1986–504. 20
In Serdar, the taxpayer gave two parcels of real property to
Smith in exchange for a single parcel valued at more than
what the Commissioner considered to be the combined value
of the taxpayer’s two properties. The Commissioner deter-
mined that the difference constituted ordinary income to the
taxpayer attributable to a prepayment penalty, owed by
Smith to the taxpayer, related to a prior transaction. In
rejecting the Commissioner’s argument, we reasoned as fol-
lows:
We think that * * * [the Commissioner’s] appraisal failed to adequately
take into account factors that made the properties peculiarly adaptable
to Smith’s use, and that their fair market value equaled the value of the
consideration received for them. The factors that the appraisal failed to
adequately take into account are the value to Smith of the road and rail-
road access that the properties provided and their assemblage value,
and, with respect to the Wadsworth Property, the value to Smith of
eliminating a tract of land that would have jutted north into his assem-
blage.

* * * * * * *
In sum, we believe that Smith was convinced that it was essential to
acquire * * * [the two properties] to enable him to develop his property
as he planned, that he was therefore willing to pay a high price for those
properties, and that * * * [the taxpayer] knew of Smith’s plans and
drove a hard bargain.

In this case, the hypothetical willing buyer (whether he be
a collector or a speculator) and seller of decedent’s fractional
interests in the art would know of the Elkins children’s
strong desire to own the art in whole. Therefore, the buyer
and seller would recognize the former’s ability to drive ‘‘a

20 For a general discussion of cases involving assemblage and other spe-

cial needs values, see John A. Bogdanski, Federal Tax Valuation, para.
2.01[2][c], at 2–32 through 2–37 (2012).

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 (86) ESTATE OF ELKINS v. COMMISSIONER 133

hard bargain’’ in negotiating a resale of that art to the chil-
dren. 21
Moreover, the hypothetical buyer-collector might very well
be content to possess the art for 73.055% (or 50%) of each
year. In his written report, Mr. Nash states:
It is not uncommon for two museums, acting together, to buy a work of
art. * * * They each take turns in exhibiting the works in proportion
to their interests. This would not work in this circumstance because the
other owners would be the Elkins Children, and not another museum or
institution. Consequently, museums would not be interested in pur-
chasing the interest.

Mr. Nash offers no reason for his conclusion that a
museum would not be as willing to share ownership with the
Elkins children as it would with another museum or institu-
tion, nor do we see one. Moreover, we see no basis for con-
cluding that only a museum jointly owning art with another
museum would be content to retain its fractional interest and
shared right of possession with another joint owner for an
indefinite period. The point, of course, is that a hypothetical
buyer-collector, in no rush to sell his or her acquired
interests in the art, would be in an even stronger bargaining
position than a speculator or art dealer in negotiating a pur-
chase price with the Elkins children.
In short, we find petitioners’ experts’ analyses and conclu-
sions to be unreliable because they are based, in large part,
on the false or at least highly dubious assumption that the
Elkins children would mount an unrelenting defense of the
status quo, ignoring the very high probability that, instead,
21 We note that the Commissioner made a similar argument in Estate of

Bright, 658 F.2d at 1007. In that case, the decedent owned 271⁄2% of the
common stock of a closely held corporation. Her surviving husband (Mr.
Bright) also owned 271⁄2%, and an unrelated party (Mr. Schiff) owned 30%.
The Commissioner argued that the decedent’s 271⁄2% interest ‘‘offered by
the ‘willing seller’ would provide the margin of control for either Mr.
Bright or Mr. Schiff, and that the ‘willing buyer’ might negotiate a resale
to either’’. The Commissioner argued that those facts constituted ‘‘relevant
facts’’ that ‘‘might affect the value of * * * [the decedent’s] 271⁄2% minority
interest which is to be valued.’’ The Commissioner stressed that ‘‘the ‘will-
ing buyer-seller’ rule renders irrelevant only the real seller and buyer, not
the other stockholders.’’ Id. The Court of Appeals for the Fifth Circuit,
after noting that ‘‘a few cases have acknowledged the relevance of such
facts’’, declined to consider the Commissioner’s argument because he made
it for the first time on appeal. Id. at 1007–1008.

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 134 140 UNITED STATES TAX COURT REPORTS (86)

the children would seek to purchase the hypothetical buyer’s
interests in the art. Because we reject that assumption, we
find Mr. Mitchell’s discounted values for the art to be unreal-
istically low. 22
c. Conclusion
Petitioners argue that the Elkins children would spend
whatever was necessary to retain their minority (or 50%)
interests in the art. It is much more likely, however, that,
given their undisputed financial resources to do so, they
would be willing to spend even more to acquire decedent’s
fractional interests therein and thereby preserve for them-
selves 100% ownership and possession of the art. The ques-
tion is how much more.
We believe that a hypothetical willing buyer and seller of
decedent’s interests in the art would agree upon a price at
or fairly close to the pro rata fair market value of those
interests. Because the hypothetical seller and buyer could not
be certain, however, regarding the Elkins children’s inten-
tions, i.e., because they could not be certain that the Elkins
children would seek to purchase the hypothetical buyer’s
interests in the art rather than be content with their existing
fractional interests, and because they could not be certain
that, if the Elkins children did seek to repurchase decedent’s
interests in the art, they would agree to pay the full pro rata
fair market value for those interests, we conclude that a
nominal discount from full pro rata fair market value is
appropriate.
22 Our analysis renders moot the dispute between the parties over

whether it is proper to assume that the hypothetical buyer might be a col-
lector purchasing multiple works of art who opts to institute a partition
in kind, which, if true, would reduce the hypothetical buyer’s potential par-
tition costs. Because the hypothetical willing buyer and seller would con-
sider a resale of decedent’s interests in the art to the Elkins children to
be the most likely alternative in arriving at a price for those interests, and
because that price, in our view, would exceed even Mr. Miller’s worst case
estimate of total partition costs ($11 million plus), it is unlikely that poten-
tial partition costs would become a significant factor in the negotiations.
For the same reason, the probability, discussed by Mr. Miller, that, under
Texas law, the restriction on sales provision in para. 7 of the cotenants’
agreement will constitute an implied waiver of the right to partition, is not
a significant factor in valuing the cotenant art.

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 (86) ESTATE OF ELKINS v. COMMISSIONER 135

We hold that, in order to account for the foregoing
uncertainties, a hypothetical buyer and seller of all or a por-
tion of decedent’s interests in the art would agree to a 10%
discount from pro rata fair market value in arriving at a pur-
chase price for those interests. We believe that a 10% dis-
count would enable a hypothetical buyer to assure himself or
herself of a reasonable profit on a resale of those interests to
the Elkins children.
VI. Conclusion
Petitioners are entitled to a 10% discount from pro rata
fair market value with respect to decedent’s interests in the
art.
A list of the 64 works of art, decedent’s pro rata share of
the stipulated fair market value of each work, and the
resulting fair market value of each work, for Federal estate
tax purposes, after applying the 10% discount permitted
herein, is attached to this Opinion as appendix C.
Decision will be entered under Rule 155.

APPENDIX A

THE GRIT ART

Stipulated
fair market
Item Artist Title/year/description/size value
1 Pollock, Untitled, Number 21, 1949 (Oil &
Jackson enamel paper on masonite, 191⁄4’’
× 263⁄4’’) $6,000,000
2 Moore, Henry Two-Piece Reclining Figure No. 3,
1961 (Bronze, 59’’ × 113’’ × 54’’) 4,000,000
3 Picasso, Pablo Baigneuse debout, 1925 (Brush &
ink on paper, 42’’ × 261⁄2’’) 600,000
Total 10,600,000

THE DISCLAIMER ART

Stipulated
fair market
Item Artist Title/year/description/size value
4 Johns, Jasper Figure 4, 1967 (Oil, encaustic &
newspaper on canvas, 531⁄2’’ ×
411⁄2’’) $8,000,000

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Stipulated
fair market
Item Artist Title/year/description/size value
5 Francis, Sam Green Gold, 1956 (Oil on canvas,
105’’ × 78’’) 2,500,000
6 Motherwell, Elegy to Spanish Republic #134,
Robert 1976 (Acrylic on canvas, 72’’
× 84’’) 1,500,000
7 Twombly, Cy Untitled, 1971 (Oil-based house
paint, wax crayon, & pencil on
canvas, 69’’ × 491⁄2’’) 1,500,000
8 Hockney, Pool on Sprayed Blue Paper...1978
David (Colored & pressed paper pulp in
6 sheets, 72’’ × 85’’) 900,000
9 Kelly, Yellow Panel, 1985 (Oil on canvas,
Ellsworth 108’’ × 1041⁄2’’) 800,000
10 Moore, Henry Standing Figure (Internal Form)
(Bronze w/green patina, 571⁄2’’
high) 600,000
11 Cezanne, Paul Pot de geraniums, ca. 1885 (Water-
color on paper, 123⁄4’’ × 101⁄4’’) 550,000
12 Soulages, 8 June 61, 1961 (Oil on canvas,
Pierre 811⁄2’’ × 571⁄2’’) 550,000
13 Magritte, Rene La lecon des tenebres, 1964
(Gouache on paper, 131⁄2’’ ×
211⁄2’’) 450,000
14 Albers, Joseph Study for Homage to a Square in
White Light, 1968 (Oil on mason-
ite, 24’’ × 24’’) 400,000
15 Johns, Jasper Three Flags, 1977 (Ink on plastic,
image: 67⁄8’’ × 97⁄8’’; 121⁄2’’ ×
181⁄8’’) 400,000
16 Hofmann, Adagio, 1962 (Oil on canvas, 48’’ ×
Hans 36’’) 375,000
17 Louis, Morris Delta Epsilon, 1960 (Acrylic on can-
vas, 103’’ × 150’’) 375,000
18 Ernst, Max The Elements..., 1962 (Oil on can-
vas, 451⁄4’’ × 35’’) 350,000
19 Moore, Henry Family Group, 1944 (Bronze w/
green patina, height 6’’) 350,000
20 De Kooning, Woman in a Garden, 1968 (Oil on
William paper on canvas, 243⁄8’’ ×
193⁄8’’) 300,000
21 Louis, Morris Achenar, 1962 (Acrylic on canvas,
791⁄2’’ × 133⁄4’’) 220,000
22 Moore, Henry Working Model for Thin Reclining
Figure, 1978 (Bronze w/brown
patina, 29’’ long) 200,000
23 Frankenthaler, Fathom, 1983 (Acrylic on canvas,
Helen 79’× 93’’) 180,000
24 Bravo, Claudio Blue and Brown Package, 1971 (Oil
on canvas, 59’’ × 78’’) 950,000
25 Bravo, Claudio Wrapped Canvas, 1973 (Oil on can-
vas, 79’’ × 47’’) 950,000
26 Bravo, Claudio Silver and Gold, 1972 (Oil on can-
vas, 44’’ × 57’’) 300,000
27 Rickey, George Untitled (Open Rectangles), ca. 1985
(Stainless steel, 180’’ × 34’’ × 34’’) 300,000
28 Botero, Parrot, 1981 (Bronze w/green pat-
Fernando ina, 58’’ high) 200,000
29 Kline, Franz The Hill, 1959 (Oil on paper, 115⁄8’’
× 9’’) 200,000
30 Hofmann, Untitled (M–418), 1964 (Oil on can-
Hans vas, 30’’ × 25’’) 150,000
31 Olitski, Jules Carnegie Hall, ca. 1962–64 (Acrylic
on canvas, 64’’ × 761⁄2’’) 150,000

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Stipulated
fair market
Item Artist Title/year/description/size value
32 Hockney, Nichols Canyon Road, Hollywood
David Boulevard, 1979 (Watercolor and
ink on paper, 231⁄4’’ × 18’’) 140,000
33 Heizer, Untitled, ca. 1985 (Cast stone, 24’ ×
Michael 20’) 100,000
34 Di Suvero, Untitled, ca. 1968 (Steel on mirror
Mark plate, sculpture: 181⁄2’’ × 42’’;
Plate: 1⁄8’’ × 46’’ × 22’’) 90,000
35 Bertoia, Harry Sunburst, 1972 (Brass & bronze
suspended mobile, 28’’ × 28’’ × 28’’) 80,000
36 Frankenthaler, Untitled, ca. 1975 (Watercolor on
Helen paper, 59’’ × 78’’) 60,000
37 Bertoia, Harry Untitled (Sounding Sculpture), 1968
(Bronze, 84’’ × 10’’ × 10’’) 50,000
38 Motherwell, In green with Two Scarlet Spots,
Robert 1967 (Paper collage, acrylic &
charcoal on paper, 30’’ × 22’’) 50,000
39 Held, Al North by Northwest, 1973 (Acrylic
on canvas, 72’’ × 96’’) 42,000
40 Hofmann, Untitled, 1949 (Oil and ink on
Hans paper, 17’’ × 14’’) 40,000
41 Dine, Jim Tie, 1961 (Oil & pastel on paper,
231⁄2’’ × 16’’) 35,000
42 Bertoia, Harry Untitled (Stainless & steel wire, 37’’
× 20’’) 30,000
43 Frankenthaler, Canal Street VIII, 1987 (Watercolor
Helen & gouache on paper, 251⁄2’’ ×
193⁄4’’) 25,000
44 Craig-Martin, Safety Pin, circa 1990 (Painted steel
Michael & wood, 100’’ × 88’’ × 13’’) 22,000
45 Hofmann, Untitled (N–677–2), 1956 (Gouache
Hans on paper, 221⁄4’’ × 281⁄4’’) 20,000
46 Hofmann, Fluse #12 (M–1351), 1962 (Oil
Hans on canvas board, 131⁄4’’ ×
111⁄2’’) 20,000
47 Nagare, Destination, 1996 (Granite, 261⁄2’’
Masayuki × 12’’ × 8’’) 18,000
48 Motherwell, Je t’aime avec noir, 1978 (Ink &
Robert pencil on tracing paper, 131⁄2’’ ×
163⁄4’’) 15,000
49 Graves, Nancy Four Times Four, 1977 (Acrylic on
canvas, 64’’ × 64’’) 8,000
50 Hofmann, Untitled, 1954 (Gouache on paper,
Hans 121⁄2’’ × 91⁄2’’) 6,000
51 Frankenthaler, Thanksgiving Day, 1980 (Hand-
Helen painted ceramic tile, 131⁄2’’ × 19’’) 4,000
52 Frankenthaler, Thanksgiving Day, ca. 1980 (Hand-
Helen painted, ceramic tile,
131⁄2’’× 17’’) 4,000
53 N/A Japanese Painted and Silvered
Paper Four-Panel Screen, 3d
Quarter, 19th Century (Silvered
paper with silk-framed border;
each panel: 52’’ × 23’’) 4,000
54 Frankenthaler, Hand Painted Book Cover #11, 1970
Helen (Acrylic on canvas, 11’’ × 12’’) 3,500
55 Graves, Nancy Omon (Series E) 1976 (Wax crayon
on paper, 35’’ × 471⁄4’’) 3,000
56 Meadmore, Untitled, 1992 (Bronze, Height:
Clement 81⁄2’’) 3,000
57 Noland, Hand Painted Bookcover, 1977
Kenneth (Acrylic on canvas, 11’’ × 12’’) 2,000

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Stipulated
fair market
Item Artist Title/year/description/size value
58 Hamilton, Abstract Form #52, 1975 (Height:
Juan 141⁄2’’) 1,750
59 Love, Jim Monday Morning: What to do...What
to do, 1992 (Welded steel, 8’’ × 8’’) 1,200
60 Love, Jim Looking for Santa Claus (Welded
steel, 93⁄8’’ × 8’’) 1,200
61 Stella, Frank Pastel Stack, 1970 (28’’ × 41’’) 900
62 Fuller, Sue String Composition #213, 1963
(Nylon & Saran thread with
Plexiglas, 36’’ × 36’’) 750
63 N/A Sepik River Carved Polychrome
Wood Mask, 20th Century
(Height: 64’’; Width: 22’’) 250
64 N/A Sepik River Carved and
Polychrome-Painted Wood Shield,
20th Century (Height: 691⁄2’’;
Width: 14’’) 100
Total 24,580,650

APPENDIX B
Fair market
Nash Option 1 Option 2 Concluded value of
category Artist Title/year discount discount discount interest

I Johns, J. Figure 4, 1967 71.72% 70.31% 70.31% $1,735,188
I Pollock, J. Untitled, Number 21, 1949 51.69 59.68 51.69 1,449,210
I Moore, H. Two-Piece Reclining Figure
No. 3, 1961 51.69 66.89 51.69 966,140
I Francis, S. Green Gold, 1956 65.78 68.95 65.78 624,926
I Motherwell, Elegy to Spanish Republic
R. #134, 1976 65.78 84.64 65.78 374,956
II Twombly, C. Untitled, 1971 71.08 84.64 71.08 316,948
II Hockney, D. Pool on Sprayed Blue
Paper..., 1978 71.08 100.00 71.08 190,169
III Bravo, C. Blue and Brown Package,
1971 79.74 100.00 79.74 140,640
III Bravo, C. Wrapped Canvas, 1973 79.74 100.00 79.74 140,640
II Kelly, E. Yellow Panel, 1985 71.08 67.43 67.43 190,350
II Moore, H. Standing Figure (Internal
Form) 71.08 75.70 71.08 126,779
II Cezanne, P. Pot de geraniums, ca. 1885 71.08 79.90 71.08 116,214
II Soulages, P. 8 June 61, 1961 71.08 80.00 71.08 116,214
II Magritte, R. La lecon des tenebres, 1964 71.08 91.19 71.08 95,084
II Picasso, P. Baigneuse debout, 1925 71.08 96.83 71.08 86,770
II Albers, J. Study for Homage to
a Square in White Light,
1968 71.08 98.98 71.08 84,519
II Johns, J. Three Flags, 1977 71.08 98.98 71.08 84,519
II Hofmann, H. Adagio, 1962 71.08 100.00 71.08 79,237
II Louis, M. Delta Epsilon, 1960 71.08 100.00 71.08 79,237
II Ernst, M. The Elements..., 1962 71.08 100.00 71.08 73,954
II Moore, H. Family Group, 1944 71.08 100.00 71.08 73,954
II De Kooning, Woman in a Garden, 1968
W. 71.08 100.00 71.08 63,390
II Louis, M. Achenar, 1962 71.08 100.00 71.08 46,486
II Moore, H. Working Model for Thin
Reclining Figure, 1978 71.08 100.00 71.08 42,260
II Frankenthal- Fathom, 1983
er, H. 71.08 100.00 71.08 38,034
III Bravo, C. Silver and Gold, 1972 79.74 100.00 79.74 44,413
III Rickey, G. Untitled (Open
Rectangles), ca. 1985 79.74 100.00 79.74 44,413
III Botero, F. Parrot, 1981 79.74 100.00 79.74 29,608
III Kline, F. The Hill, 1959 79.74 100.00 79.74 29,608
III Hofmann, H. Untitled (M–418), 1964 79.74 100.00 79.74 22,206
III Olitski, J. Carnegie Hall, ca. 1962–64 79.74 100.00 79.74 22,206

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 (86) ESTATE OF ELKINS v. COMMISSIONER 139

Fair market
Nash Option 1 Option 2 Concluded value of
category Artist Title/year discount discount discount interest

III Hockney, D. Nichols Canyon Road,
Hollywood Boulevard,
1979 79.74 100.00 79.74 20,726
III Heizer, M. Untitled, ca. 1985 79.74 100.00 79.74 14,804
III Di Suvero, M. Untitled, ca. 1968 79.74 100.00 79.74 13,324
III Bertoia, H. Sunburst, 1972 79.74 100.00 79.74 11,843
III Frankenthal- Untitled, ca. 1975
er, H. 79.74 100.00 79.74 8,883
III Bertoia, H. Untitled (Sounding Sculp-
ture), 1968 79.74 100.00 79.74 7,402
III Motherwell, In green with Two Scarlet
R. Spots, 1967 79.74 100.00 79.74 7,402
III Held, A. North by Northwest, 1973 79.74 100.00 79.74 6,218
III Hofmann, H. Untitled, 1949 79.74 100.00 79.74 5,922
III Dine, J. Tie, 1961 79.74 100.00 79.74 5,181
III Bertoia, H. Untitled 79.74 100.00 79.74 4,441
III Frankenthal- Canal Street VIII, 1987
er, H. 79.74 100.00 79.74 3,701
III Craig-Martin, Safety Pin, ca. 1990
M. 79.74 100.00 79.74 3,257
III Hofmann, H. Untitled (N–677–2), 1956 79.74 100.00 79.74 2,961
III Hofmann, H. Fluse #12 (M–1351), 1962 79.74 100.00 79.74 2,961
III Nagare, M. Destination, 1996 79.74 100.00 79.74 2,665
III Motherwell, Je t’aime avec noir, 1978
R. 79.74 100.00 79.74 2,221
III Graves, N. Four Times Four, 1977 79.74 100.00 79.74 1,184
III Hofmann, H. Untitled, 1954 79.74 100.00 79.74 888
III Frankenthal- Thanksgiving Day, 1980
er, H. 79.74 100.00 79.74 592
III Frankenthal Thanksgiving Day, ca. 1980
er, H. 79.74 100.00 79.74 592
III N/A Japanese Painted and
Silvered Paper Four-
Panel Screen, 3d Quarter,
19th Century 79.74 100.00 79.74 592
III Frankenthal- Hand Painted Book Cover
er, H. #11, 1970 79.74 100.00 79.74 518
III Graves, N. Omon (Series E), 1976 79.74 100.00 79.74 444
III Meadmore, C. Untitled, 1992 79.74 100.00 79.74 444
III Noland, K. Hand Painted
Bookcover, 1977 79.74 100.00 79.74 296
III Hamilton, J. Abstract Form #52, 1975 79.74 100.00 79.74 259
III Love, J. Monday Morning: What to
do...What to do, 1992 79.74 100.00 79.74 178
III Love, J. Looking for Santa Claus 79.74 100.00 79.74 178
III Stella, F. Pastel Stack, 1970 79.74 100.00 79.74 133
III Fuller, S. String Composition
#213, 1963 79.74 100.00 79.74 111
III N/A Sepik River Carved
Polychrome Wood Mask,
20th Century 79.74 100.00 79.74 37
III N/A Sepik River Carved and
Polychrome-Painted Wood
Shield, 20th Century 79.74 100.00 79.74 15

APPENDIX C

VALUES OF DECEDENT’S INTERESTS IN THE 64 WORKS OF ART
FOR FEDERAL ESTATE TAX PURPOSES
Fair market
Decedent’s pro value of dece-
rata share of stip- dent’s interest
ulated fair mar- after application
Item Artist Title/year ket value1 of 10% discount

1 Pollock, Jackson Untitled, Number 21, 1949 $3,000,000 $2,700,000
2 Moore, Henry Two-Piece Reclining Figure No. 3, 1961 2,000,000 1,800,000
3 Picasso, Pablo Baigneuse debout, 1925 300,000 270,000
4 Johns, Jasper Figure 4, 1967 5,844,400 5,259,960
5 Francis, Sam Green Gold, 1956 1,826,375 1,643,738

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Fair market
Decedent’s pro value of dece-
rata share of stip- dent’s interest
ulated fair mar- after application
Item Artist Title/year ket value1 of 10% discount

6 Motherwell, Rob- Elegy to Spanish Republic #134, 1976
ert 1,095,825 986,243
7 Twombly, Cy Untitled, 1971 1,095,825 986,243
8 Hockney, David Pool on Sprayed Blue Paper...1978 657,495 591,746
9 Kelly, Ellsworth Yellow Panel, 1985 584,440 525,996
10 Moore, Henry Standing Figure (Internal Form) 438,330 394,497
11 Cezanne, Paul Pot de geraniums, ca. 1885 401,803 361,623
12 Soulages, Pierre 8 June 61, 1961 401,803 361,623
13 Magritte, Rene La lecon des tenebres, 1964 328,748 295,873
14 Albers, Joseph Study for Homage to a Square in White
Light, 1968 292,220 262,998
15 Johns, Jasper Three Flags, 1977 292,220 262,998
16 Hofmann, Hans Adagio, 1962 273,956 246,560
17 Louis, Morris Delta Epsilon, 1960 273,956 246,560
18 Ernst, Max The Elements..., 1962 255,693 230,124
19 Moore, Henry Family Group, 1944 255,693 230,124
20 De Kooning, Wil- Woman in a Garden, 1968
liam 219,165 197,249
21 Louis, Morris Achenar, 1962 160,721 144,649
22 Moore, Henry Working Model for Thin Reclining Fig-
ure, 1978 146,110 131,499
23 Frankenthaler, Fathom, 1983
Helen 131,499 118,349
24 Bravo, Claudio Blue and Brown Package, 1971 694,023 624,621
25 Bravo, Claudio Wrapped Canvas, 1973 694,023 624,621
26 Bravo, Claudio Silver and Gold, 1972 219,165 197,249
27 Rickey, George Untitled (Open Rectangles), ca. 1985 219,165 197,249
28 Botero, Fernando Parrot, 1981 146,110 131,499
29 Kline, Franz The Hill, 1959 146,110 131,499
30 Hofmann, Hans Untitled (M–418), 1964 109,583 98,625
31 Olitski, Jules Carnegie Hall, ca. 1962–64 109,583 98,625
32 Hockney, David Nichols Canyon Road, Hollywood Bou-
levard, 1979 102,277 92,049
33 Heizer, Michael Untitled, ca. 1985 73,055 65,750
34 Di Suvero, Mark Untitled, ca. 1968 65,750 59,175
35 Bertoia, Harry Sunburst, 1972 58,444 52,600
36 Frankenthaler, Untitled, ca. 1975
Helen 43,833 39,450
37 Bertoia, Harry Untitled (Sounding Sculpture), 1968 36,528 32,875
38 Motherwell, Rob- In green with Two Scarlet Spots, 1967
ert 36,528 32,875
39 Held, Al North by Northwest, 1973 30,683 27,615
40 Hofmann, Hans Untitled, 1949 29,222 26,300
41 Dine, Jim Tie, 1961 25,569 23,012
42 Bertoia, Harry Untitled 21,917 19,725
43 Frankenthaler, Canal Street VIII, 1987
Helen 18,264 16,438
44 Craig-Martin, Mi- Safety Pin, ca. 1990
chael 16,072 14,465
45 Hofmann, Hans Untitled (N–677–2), 1956 14,611 13,150
46 Hofmann, Hans Fluse #12 (M–1351), 1962 14,611 13,150
47 Nagare, Destination, 1996
Masayuki 13,150 11,835
48 Motherwell, Rob- Je t’aime avec noir, 1978
ert 10,958 9,862
49 Graves, Nancy Four Times Four, 1977 5,844 5,260
50 Hofmann, Hans Untitled, 1954 4,383 3,945
51 Frankenthaler, Thanksgiving Day, 1980
Helen 2,922 2,630
52 Frankenthaler, Thanksgiving Day, ca. 1980
Helen 2,922 2,630
53 N/A Japanese Painted and Silvered Paper
Four-Panel Screen, 3d Quar-
ter, 19th Century 2,922 2,630
54 Frankenthaler, Hand Painted Book Cover #11, 1970
Helen 2,557 2,301
55 Graves, Nancy Omon (Series E), 1976 2,192 1,973
56 Meadmore, Clem- Untitled, 1992
ent 2,192 1,973
57 Noland, Kenneth Hand Painted Bookcover, 1977 1,461 1,315
58 Hamilton, Juan Abstract Form #52, 1975 1,278 1,150

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 (86) ESTATE OF ELKINS v. COMMISSIONER 141

Fair market
Decedent’s pro value of dece-
rata share of stip- dent’s interest
ulated fair mar- after application
Item Artist Title/year ket value1 of 10% discount

59 Love, Jim Monday Morning: What to do...What
to do, 1992 877 789
60 Love, Jim Looking for Santa Claus 877 789
61 Stella, Frank Pastel Stack, 1970 657 591
62 Fuller, Sue String Composition #213, 1963 548 493
63 N/A Sepik River Carved Polychrome Wood
Mask, 20th Century 183 165
64 N/A Sepik River Carved and Polychrome-
Painted Wood Shield, 20th Century 73 66

1 Decedent’s share of agreed fair market value with respect to items 1 through 3 is 50%. For all other items, it is
73.055%.

f

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