Written by Jennifer Stoots
In 1986 Herbert Alexlrod, a collector of stringed instruments who had made his fortune as a publisher of pet-care books, loaned four (4) Stradivarius instruments to the National Museum of American History. The “Axelrod Quartet,” as the set is now referred to, consists of a 1687 violin, a 1709 violin, a 1695 viola and a 1688 cello. According to several reports, Mr. Axelrod agreed to give the collection to the Smithsonian upon the sale of his publishing company, TFH Publications, whereby he could use the tax credit from the donation to offset subsequent taxes from the sale. In 1997, Mr. Axelrod sold his business and the loan of the four Stradivari instruments was turned into a gift. The reported value of the charitable donation to the National Museum claimed on Mr. Axelrod’s tax return for that year was $55 million.
In February 2003 the New Jersey Symphony Orchestra purchased thirty (30) stringed instruments from Herbert Axelrod. The violins, violas and cellos included in the transaction are, for the most part, 19th Century productions and made by various, notable craftsmen of the trade. Together, the thirty (30) instruments were purported to be worth $49 million but were sold to the NJSO for $17 million, whereby Mr. Axelrod claimed $27 million as a donation in kind on his tax return.
In April 2004, Herbert Axelrod fled to Cuba, shortly before being indicted for tax fraud in connection with a former employee of TFH Publications. The case involving his former employee has brought negative attention to Mr. Axelrod’s generous donations and large deduction claims.
Whether or not the claimed values are appropriate, Mr. Axelrod did not follow IRS guidelines with regard to non-cash charitable donations. For gifts valued at more than $5,000, the IRS requires that the taxpayer have an independent appraisal done of the item(s) being donated at fair market value. Additionally, the taxpayer’s return must be accompanied by Form 8283, listing the gift(s) and must be signed by the donor/taxpayer, the appraiser and a representative of the receiving institution or organization. According to one New York Times article, no formal appraisal was done on the “Axelrod Quartet” and a Form 8283 did not accompany Mr. Axelrod’s 1997 tax return.
At this time, however, the fuss over the Smithsonian Gift is likely moot since the IRS failed to notify the taxpayer within 3 years that they intended to challenge the deduction. As to the NJSO purchase, prior to purchasing the thirty (30) instruments, the NJSO board did its due diligence in hiring several independent appraisers who assured them that they were getting the lot at a good price. Mr. Axelrod’s deduction claim is another matter and ultimately up to a judge.
Senator Charles E. Grassy (R-Iowa), chairman of the Senate Finance Committee, expressed the opinion that the charitable donation deductions have been abused, in that in-kind donation values are often inflated and is in the process of proposing reform. It would be most unfortunate if the tax laws are changed such that making a charitable donation of artwork to an institution is without incentive. Few non-profit cultural and arts based institutions have the financial means to purchase outright and are primarily dependent on the generosity of their community and patrons. There is already a system in place to keep taxpayers honest with regard to charitable donation deduction claims; the IRS only has itself to blame for overlooking the obvious omissions of Mr. Axelrod’s return. Over zealous reform would prove a disservice to everyone.
-Jennifer Stoots
STOOTS Fine Photography Newsletter, October 2004
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