Michael Dunworth, a partner in Pryor Cashman's Tax and Investment Management Groups, and Partner Megan Noh, a co-chair of the firm's Art Law Group, recently discussed the most recent iteration of the long-debated federal billionaire's tax. According to Tax Notes, a news source offered by nonprofit tax publisher Tax Analysts, the billionaire's tax recently proposed would effectively create a new tax regime by introducing a new avenue to revenue by, in part, "annually tax gains and allow deductions for losses, including carrybacks and carryforwards, on publicly traded assets."
The publication quotes both Dunworth and Noh:
"If this were to pass, I think it would be a whole new world with respect to planning for those individuals that come within its grip," Michael P. Dunworth of Pryor Cashman LLP told Tax Notes.
[...]
Among the new terms introduced by the billionaire's tax, a key one is "tradable covered assets" -- those assets that must be marked to market annually. That would tax assets with a readily ascertainable value, which at first glance suggests art would be excluded from the annual tax, observed Megan Noh, also of Pryor Cashman. Unique works of art require complex valuations, including reference to recent comparable sales and consideration of other market factors, she said.
But one question lingering in Noh's mind is whether the recent rise of online platforms that facilitate transactions between buyers and sellers of artwork could be a string that ties at least some artwork to the tradable covered asset category. "Hopefully, Treasury will issue regulations to clear up this," she said.
[...]
Dunworth [...] said he thinks it's unlikely that billionaires' art collections are what legislators like [Senate Finance Committee Chair Ron Wyden, D-Ore.] had in mind for annual taxation when they crafter their tax proposals. Nevertheless, "as we have the proliferation of these online platforms, it raises the question," he said.
[...]
Tax professionals have no shortage of questions when it comes to how the billionaire's tax would apply in practice.
Dunworth wondered how, for example, prenuptial agreements would be dealt with. "Let's say I have an art collection, [and] all of a sudden I marry some uber-wealthy woman, and now that has to be marked to market. That still needs to get worked through," he said.
And even though art is likely to escape the tradable covered asset category and subsequent annual taxation, the many ways that transfers would trigger the tax that ordinarily don't apply would complicate typical tax planning, Dunworth said. "It turns a lot of things on its ear," he said.
Read the whole discussion and analysis in the Tax Notes article linked below.
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