The lawsuit brought by the United States seeking $26.5 million in federal taxes from art dealers and investors including Gagosian Gallery, Larry Gagosian, and others, has been settled.
The government claim originally consisted of $6.7 million in capital gains tax due on a complicated 1990 art transaction, increased by $19.8 million in penalties and interest. The total now to be paid by all the defendants is $9.9 million, which is the same as the base amount of a judgment, before adding penalties and interest, which the United States won in 2002 against a shell company used in the 1990 transaction, Contemporary Art Holding Corporation (CAHC).
Under the settlement, the Gagosian Gallery and Larry Gagosian have together agreed to pay $4 million. The government has agreed to release a levy it had served on paintings held by Gagosian. “The gallery is very satisfied with the outcome of the settlement. This is an old dispute”, a spokesman for Gagosian Gallery told The Art Newspaper. “After 11 years, we paid the same amount that we have been willing to pay all along to resolve this.”
Also under the terms of the settlement, other defendants in the tax dispute, Geoffrey J. W. Kent and GJK Incorporated, agreed to pay $800,000 in tax, while real estate developer and collector Peter M. Brant agreed to pay $5.1 million.
In March 2003, the US filed a civil lawsuit against the defendants seeking to collect the unpaid $9.9 million judgment against CAHC and to “pierce the corporate veil of CAHC and hold Gagosian, Brant and GJK liable as the alter egos of CAHC”.
The government appears to have partially succeeded, apparently in exchange for giving up the claims for interest and penalties.
According to the original government complaint, the income tax liability was on about $17 million of capital gains on a one-day transaction in 1990, when CAHC bought 62 paintings for $32 million, then sold 58 of them for $20 million to a third party. CAHC reported on its income tax returns that it owed the $6.7 million in tax on the transactions, but paid nothing. All remaining assets were later “fraudulently conveyed” out of CAHC, leaving it “with no assets to pay its taxes”, the government alleged.
In 1993, the US Internal Revenue Service served a tax levy on Gagosian for the Lichtenstein and Still paintings, which were involved in the transaction.
Originally appeared in The Art Newspaper as 'Gagosian and Brant pay $10 million to Uncle Sam in unpaid taxes'