As the old saying goes – nothing is certain but death and taxes.
In a recent decision, a New York Division of Taxation administrative law judge denied a prominent art dealer a refund on state taxes paid on a now rescinded $2.5 million USD sale of a fake Max Ernst. The matter involved a forged painting sold in 2004 that was linked to Wolfgang Beltracchi who after admitting to creating a series of fake paintings was sentenced to six years in prison in 2011. The judge determined that the dealer was ineligible for the $200K plus refund because the request was not timely filed under New York State tax law § 1139(c). The dealer unsuccessfully argued that the statute of limitation based on fraud, which begins from when the cause of action accrued or two years from when the plaintiff discovered the fraud, should apply. Specifically, the judge rejected the argument that the statute of limitations for refunds, which is three years, should have been tolled until the fraud scheme was discovered more than six years after the sale. The judge ruled that the statute of limitation clearly required disallowance of untimely filed refunds (no matter what the reason). The judge further noted that certainty of the refund deadline was a necessity because“[a]nything less than this degree of certainty would make the financial operation of government difficult, if not impossible.” In recent reports, the art dealer has vowed to pursue an appeal of the administrative law decision. For all of you art lovers out there, this decision highlights the risks involved in art connoisseurship . . . when even the experts can be fooled.