## Facts

- Dennis M. Vander Hook and his wife, Judy, purchased an undivided fractional interest in a portfolio of six paintings through Legal Dynamics, Inc., a promoter of fractional art interests.
- The purchasers were told before acquisition that the paintings carried high appraised values consistent with later appraisal reports used to support charitable deductions.
- The Vander Hooks donated their fractional interest to Pepperdine University and claimed charitable-contribution deductions on their 1972 and 1973 returns totaling about $12,000.
- The IRS determined the donated interest had a much lower fair market value and allowed only about $1,200 in total deductions, issuing a notice of deficiency.
- The taxpayers relied on an expert appraiser (Harry Muir Kurtzworth) who valued the portfolio at roughly $272,000 and vouched for authenticity.
- The IRS relied on an expert (Kenneth Donahue, director of the Los Angeles County Museum of Art) who concluded five of the six paintings were inauthentic or misattributed and therefore had only nominal market value.
- Kurtzworth admitted he increased his valuation at the request of Legal Dynamics, undermining the independence and credibility of the taxpayers’ valuation evidence.

## Issues

1. What was the fair market value of the taxpayers’ undivided fractional interest in the six paintings at the time of the charitable contributions for purposes of the I.R.C. § 170 deduction?
2. Whether additions to tax for negligence or similar valuation-related misconduct applied given the substantial overstatement and the appraisal’s promoter influence.

## Decision

- The Tax Court held the fair market value of the donated fractional interest was far below the amount claimed and largely accepted the Commissioner’s substantially lower valuation.
- The court credited the IRS expert’s testimony on authenticity and market value and discounted the taxpayers’ expert due to weak qualifications, limited familiarity with relevant artists’ works, and admitted valuation inflation at the promoter’s request.
- The court sustained the deficiency and upheld negligence/valuation-related additions to tax in light of the taxpayers’ reliance on an appraisal that was not independent and was materially overstated.

## Legal Principles

- For charitable contributions of property, fair market value is the price a willing buyer and willing seller, both informed and under no compulsion, would agree upon at the time of the gift.
- The taxpayer bears the burden to show the Commissioner’s valuation is wrong and to establish the correct value with credible evidence.
- In competing-appraisal disputes, the court weighs expert testimony based on credentials, independence, familiarity with the relevant market and comparable works, and the reasoning supporting conclusions.
- Authenticity is a primary driver of art valuation; credible evidence of inauthenticity can reduce value to nominal levels, sharply limiting any charitable deduction.
- Reliance on an appraiser does not excuse overvaluation where the appraisal is obviously unreliable or influenced by a promoter; such reliance supports negligence or similar additions to tax.

## Conclusion

The Tax Court substantially reduced the taxpayers’ charitable-contribution deductions for a fractional art donation after finding the promoter-linked appraisal unreliable and crediting the IRS expert’s authenticity-based valuation; it also sustained negligence-related additions to tax because the overstatement stemmed from an inflated, non-independent appraisal.


Vander Hook v. Commissioner, 36 T.C.M. (CCH) 1394 (T.C. 1977)