## Facts

- In 1912, Hilla Rebay began taking an interest in and creating “nonobjective” (abstract) paintings.
- Over the years, Rebay donated a number of her paintings to charitable organizations, including colleges and museums.
- On her 1955–1959 federal income-tax returns, Rebay claimed charitable-contribution deductions based on her asserted fair market values of the donated paintings.
- Rebay had little to no sales history for her nonobjective paintings during the donation years.
- In 1962, Rebay made her first sale of a nonobjective painting, selling one work for $15,000 to a purchaser who was not an art collector.
- After examining Rebay’s 1955–1959 returns, the Commissioner of Internal Revenue issued deficiency notices disallowing the charitable deductions in whole or in part, based on downward determinations of the paintings’ fair market value.
- Rebay petitioned the U.S. Tax Court to challenge the Commissioner’s valuation determinations.
- At trial, the Commissioner introduced testimony from art-market witnesses supporting the Commissioner’s lower values.
- Rebay offered a valuation witness who relied heavily on the 1962 sale; that witness placed values below the amounts Rebay had claimed on her returns, but above the Commissioner’s figures.

## Issues

1. What were the fair market values of Rebay’s donated nonobjective paintings on the respective contribution dates for purposes of the charitable-contribution deductions claimed for 1955–1959?
2. How much weight, if any, should the court give to a single sale occurring after the donation years when valuing the paintings as of the earlier contribution dates?
3. Did Rebay carry her burden to show that the Commissioner’s downward valuation determinations were wrong and to establish higher values for the donated works?

## Decision

- The Tax Court did not accept the fair market values Rebay reported on her returns for the donated paintings.
- The court treated the isolated 1962 $15,000 sale as limited evidence for valuing donations made in 1955–1959.
- Relying primarily on the record as a whole, including valuation testimony, the court determined contribution-date values substantially below Rebay’s claimed amounts and sustained the deficiencies except to the extent modified by the court’s own findings of value.

## Legal Principles

- A charitable-contribution deduction for donated property depends on the property’s fair market value at the time of the gift.
- Fair market value is determined by the price a willing buyer and willing seller would agree to on the valuation date, with neither under compulsion and both informed as to relevant facts.
- When there is little contemporaneous sales data for the type of property being valued, the court may rely heavily on valuation testimony and other indirect market indicators, and it may accept or reject all or part of any witness’s opinion.
- A sale occurring after the valuation date may be considered only to the extent it reliably reflects value as of the earlier date; a single later transaction, without more, generally has limited force for earlier-year valuation.
- In a deficiency case, the Commissioner’s determinations are presumed correct, and the taxpayer bears the burden of proving entitlement to the deductions claimed and the amounts of any higher values asserted.

## Conclusion

In Hilla Rebay, T.C. Memo. 1963-42 (1963), the Tax Court valued an artist’s self-created nonobjective paintings donated to charity during 1955–1959 and rejected the high values claimed on the returns, giving limited weight to a lone 1962 sale and relying instead on the full record, including valuation testimony, to set lower fair market values and sustain the IRS’s adjustments to a substantial extent.
