## Facts

- Georgia O’Keeffe, an American artist, died on March 6, 1986, owning approximately 400 unsold artworks.
- Her estate valued the artworks for federal estate tax purposes at an aggregate amount of $72,759,000 before any discount.
- The estate contended that the fair market value should reflect a “blockage discount,” based on the idea that offering a large quantity of one artist’s work for sale at the same time could depress prices.
- The estate claimed a 75% blockage discount, which would reduce the collection’s fair market value to about $18 million.
- The IRS agreed with the estate’s undiscounted aggregate valuation but disagreed with the size of the blockage discount and determined an estate tax deficiency.
- The estate petitioned the United States Tax Court to contest the deficiency.
- At trial, the estate offered expert testimony that the relevant market for valuing the collection was a market of single bulk purchasers who would buy the art for resale.
- The IRS offered expert testimony that the relevant market was segmented by price and demand, such that higher-value works could be sold relatively quickly without being materially affected by the presence of lower-value works.
- The Tax Court evaluated the competing valuation approaches and the evidence bearing on how the artworks could be sold and at what prices in the relevant market.

## Issues

1. For estate tax valuation of Georgia O’Keeffe’s unsold artworks, what is the appropriate “blockage discount” (if any) to reflect the market impact of selling a large number of works by the same artist?
2. In applying any blockage discount, what market definition and sales assumptions should be used (e.g., bulk purchaser for resale versus segmented retail markets by price and demand)?
3. How should the Tax Court weigh competing expert testimony and other valuation evidence to determine fair market value for estate tax purposes?

## Decision

- The Tax Court treated the case as an estate tax valuation dispute focused on the proper blockage discount applicable to a large collection of unsold artworks.
- The court evaluated the parties’ competing market definitions and sales assumptions, including whether valuation should be based on bulk-sale dynamics or segmented markets by category and price level.
- The court weighed the expert testimony and other evidence to determine the blockage discount and resulting fair market value to be used in computing the estate’s tax liability.
- Based on the court’s valuation findings, the estate tax deficiency was resolved through application of the court-determined discount and corresponding recomputation.

## Legal Principles

- For federal estate tax purposes, property is generally valued at its fair market value at the decedent’s date of death, using a willing-buyer/willing-seller framework and assuming neither party is under compulsion to buy or sell.
- A “blockage discount” may be relevant when valuing a large quantity of similar property (including artwork) if introducing that quantity into the market within a reasonable selling period would tend to reduce the per-item price.
- Determining whether, and to what extent, a blockage discount applies depends on evidence about the relevant market, likely selling channels, demand at different price points, and the time and manner in which the property could realistically be sold.
- In valuation disputes, the Tax Court may accept or reject all or part of expert opinions, and it may reach its own valuation conclusions based on the full record, including testimony, comparable sales data, and practical selling constraints.

## Conclusion

*Estate of O’Keeffe v. Commissioner* is a Tax Court memorandum decision addressing how to value Georgia O’Keeffe’s large inventory of unsold artworks for estate tax purposes, with the central dispute being the size of a blockage discount and the proper market assumptions for determining fair market value; the court resolved the deficiency by weighing competing expert testimony and determining an appropriate discount and resulting valuation.


Estate of O'Keeffe v. Commissioner, 63 T.C.M. (CCH) 2699 (1992)