## Facts

- Mark Rothko created the Mark Rothko Foundation in 1967 and died in 1970, leaving substantially all remaining property to the Foundation after specific bequests.
- Bernard J. Reis served as an executor of the Estate of Mark Rothko and as a director of the Foundation.
- Reis was also an officer and employee of Marlborough Gallery, Inc., a commercial art gallery.
- After Rothko’s death, the executors (including Reis) entered contracts with the Gallery that effectively granted it exclusive rights to sell Rothko paintings, the principal assets of the Rothko estate.
- The contracts included a 12-year exclusivity term and provided the Gallery a 50% commission on each painting sold.
- New York state-court litigation ensued involving Rothko’s family, the executors, the Gallery, and the Foundation (as intervenor), challenging the contracts and executor conduct.
- The state-court litigation resulted in avoidance of the contracts, removal of executors, and damages awarded to the Rothko estate.
- The IRS determined Reis was a “disqualified person” with respect to the Foundation and asserted excise taxes and additions to tax under I.R.C. § 4941 for alleged self-dealing, with assessed liabilities later pursued against Reis’s estate after his death.
- The estate petitioned the Tax Court; both parties filed cross-motions for summary judgment.

## Issues

1. Whether I.R.C. § 4941(d)(1)(E) is unconstitutionally vague.
2. Whether the Foundation’s expectancy interest in Rothko estate assets constituted “assets” of the Foundation for purposes of § 4941.
3. Whether the Foundation’s assets were used for Reis’s direct or indirect benefit under § 4941, and whether that question could be decided on summary judgment.
4. Whether the Tax Court could take judicial notice of specific findings of fact made by New York courts in the Rothko litigation under Fed. R. Evid. 201.

## Decision

- The court held § 4941(d)(1)(E) was not unconstitutionally vague.
- The court held the Foundation’s expectancy interest in the Rothko estate assets constituted assets of the Foundation for purposes of § 4941.
- The court held whether the Foundation’s assets were used for Reis’s direct or indirect benefit was a fact question not resolvable on summary judgment.
- The court held it could not take judicial notice of the New York courts’ specific factual findings under Fed. R. Evid. 201 for use as findings in this proceeding.
- The court denied both parties’ motions for summary judgment.

## Legal Principles

- I.R.C. § 4941(d)(1)(E) provides constitutionally sufficient notice and standards; it is not void for vagueness.
- For § 4941 self-dealing analysis, a private foundation’s expectancy interest in property it is entitled to receive under a will may be treated as an “asset” of the foundation even before legal title passes.
- Whether transactions constituted use of foundation assets for a disqualified person’s direct or indirect benefit is typically fact-intensive and may preclude summary judgment.
- Fed. R. Evid. 201 permits judicial notice of certain adjudicative facts, but it does not allow a court to adopt another court’s specific findings of fact as its own through judicial notice.

## Conclusion

The Tax Court sustained § 4941 against a vagueness challenge, construed a private foundation’s expectancy in a decedent’s estate as a foundation asset for self-dealing purposes, and denied summary judgment because the alleged benefit to the disqualified person required factual development and because state-court fact findings could not be imported via judicial notice.


Estate of Bernard J. Reis v. Commissioner, 87 T.C. 1016 (1986)