I Am the Taxman - Rauschenberg's Canyon 2012

I Am the Taxman

Remember the great Beatles song, I Am the Taxman, penned by George Harrison? It ends with the classic line "and you're working for no one but me."

Today is July 23, the day on which most of us in California stop working to pay the government's costs, and start working for ourselves.

This blog though is not about excessive taxation rates.

It is about the IRS's Machiavellian treatment of the Estate of Ileana Sonnabend, a famous New York art dealer who died in 2007 at 92. Her estate included several works of art.

Estates owe inheritance taxes, or "death taxes" when we die. Ignoring the vagaries and technicalities of tax law, the taxes are based on the estate's net assets.

Valuing the assets can be tricky. Tangible assets are easy to appraise. Intangibles, such as works of art, have to be appraised by experts. It is based on the fair market value of the asset; that is, an agreement between a willing purchaser and a willing seller.

Sonnaband's heirs filed a return stating art assets of $876 million. They have paid $331 million in federal estate taxes and $140 million in New York State taxes. They sold millions in paintings by Jasper Johns, Jeff Koons, Andy Warhol, and Cynthia Trombly to cover the costs. Obviously Ileana had a poor estate plan.

One painting though is in dispute, Canyon, by Robert Rauschenberg, currently on long term loan to the Met. The estate got appraisals from three sources, including Christy's. The appraised value is $0.00.

How can one of Rauschenberg's most famous works be valued at nothing?

The 1959 Canyon is not a traditional painting, or work of art. It is an assemblage or “combine.” The artist threw together any number of convenient objects, such as oil, house paint, paper, metal, nails, wood, paper, et al in some of his works.

Canyon is unique though in that it includes the carcass of a bald eagle. Two federal statutes, the Migratory Bird Act of 1918 and the 1940 Bald and Golden Eagle Protection Act make it illegal to possess, sell, purchase, barter, import or export a bald eagle, whether dead or alive. The artist declared the dead eagle was killed and stuffed by Teddy Roosevelt’s Rough Riders before the statute was enacted. Hence, the painting could be loaned to the Met.

However, the painting cannot be sold. Hence, it has zero value. 

The IRS apparently hypothesized a millionaire Chinese art collector, who would be willing to buy the painting on the black market and smuggle it out of the country.

Hence, it came up with a value of $65 million on the painting, yielding a tax of $$29.2 million. In addition, the IRS assessed a deficiency of an additional $11.7 million on the estate for failure to pay the tax.

The heirs can’t sell the painting. Hence, there is no willing seller. The executor would commit a felony in selling the painting. The purchaser would also commit a felony.  

The canyon of difference in assessed value managed to make Forbes Magazine in February and the New York Times yesterday. This is not a case where the parties can split the difference.

Only the IRS can turn something into nothing. Machiavelli would be proud of the agency.

I am the Taxman

“Now my advice for those who die

Declare the pennies on your eyes

‘Cause I’m the taxman, yeah. I’m the taxman.

And you’re working for no one but me.”

The NCAA Bullies Penn State

Binder, you’re not really going to post this blog, are you? You’re not defending the indefensible, Penn State, are you?

Yes, and no.

 

I hold no brief for Penn State. I’ve read the Grand Jury report and Freeh Report. They are damming. The actions of the President, Vice President, and Athletic Director of Penn State were as despicable as those of some Catholic Bishops who covered up clergy abuse. President Graham B. Spanier, Senior Vice President – Finance and Business Gary Schultz, and Athletic Director Tim Curley breached their legal and moral obligations.

A lack of clear evidence leaves the role of the late coach Joe Paterno a little murky, being left to inferences and hearsay, but certainly not up to the highest ethical standards he professed. Paterno did not use email.and his "fingerprints" are not on any document.

The university officials were either consciously or negligently ignorant of legal requirements, such as the Jeanne Clery Act and state laws. They may have engaged in a conspiracy of silence, willful ignorance, relied upon inadequate advice of counsel, or all of the above.

Penn State has cleaned house, and will settle, for presumably large sums, the abuse claims brought against it by Sandusky’s victims since 1998. The victims, often scarred for life, deserve whatever they receive from Penn State.

The total cost to the university will be in the hundreds of millions; the cost to its reputation is incalculable.

It needs to make a clean break with the past and move forward, as quickly as possible. It will now survive as a great research university, and not as a football power.

It has already acceded to the draconian NCAA penalties. They include a $60 million fine, an initial loss of ten scholarships per year for 4 years for the football program, a ban on post season bowl games for 4 years, five years probation, a forfeiture of all victories from 1998 – 2011, agreement to implement all the Freeh Report recommendations.

The $60 million, payable over 5 years, will go to an endowment for “programs preventing child sexual abuse and/or assisting the victims of child sexual abuse.”

Current players will be allowed to transfer without sitting out a year and current recruits are released from their commitment letters. 

The Big Ten then announced that Penn State will forfeit its share of the league’s bowl proceeds for the next 4 years, estimated to be about $13 million. These monies will be donated to child protection charities in the Big Ten community.

Most sports commentators, and perhaps the general public support the NCAA sanctions. A large majority are justifiably outraged by the callous indifference to the presence of a pedophile in its athletic department, even after he retired. For some though, it seems more like an example of Schadenfreude.

I question though the jurisdiction of the NCAA, a heretofore feckless organization with thousands of pages of arbitrary and capricious, incomprehensible rules, sometimes of a Mickey Mouse nature (See Caltech) to suddenly become the moral authority of higher education.

Penn State did not violate any NCAA bylaws. Nor did its misconduct relate to competition on the field. 

Penn State and its former officials are facing criminal and civil actions, but they have not committed an established NCAA violation. The alleged NCAA violation is “lack of institutional control,” a vague term of little actual meaning, but could be applied to almost any violation.

The NCAA, which normally acts with a pace between glacial and snail on alleged violations, has made a rush to judgment. It did not pursue an investigation of its own. It has not heretofore acquired a reputation as a paragon of virtue.

The NCAA rushed here to grab power when the accused is powerless to resist.

Has the NCAA now unilaterally anointed itself the morals police of colleges? Does that mean it will adopt standards against sexual assaults, domestic abuse, sexual harassment, alcoholism, drug addiction, DWI’s, assaults and batteries, grand theft, petty theft, and other felonies and misdemeanors, all of which seem endemic in many sports programs today? Will the NCAA adopt a Zero Tolerance Policy? Will it require a conviction or guilty plea, or, as with Penn State, will it impose sanctions prior to legal resolution of the claims? Is there a permissible limit on the number of arrests per year?

The NCAA has consistently overlooked these criminal acts in the past, even with multiple violations.

The NCAA has acted like the neighborhood bully with Caltech and Penn State.

The forfeiture of all wins from 1998 to 2011 is interesting. 1998 is when the first allegations about Jerry Sandusky arose. The University apparently did nothing. However, the police recommended a criminal prosecution of Coach Sandusky, and the District Attorney, who has since disappeared, refused to prosecute.

This decision is not about justice for the victims; it is purely a power play by the NCAA. It is extending its powers against a once-power which cannot fight back.

Governor Romney Had a Great Week

Governor Romney had a great week this past week, by far the best in this camapign.

Whoever writes The Making of the President 2012 should mark this week as a critical turning point in the election.

Governor Romney found his voice.

You didn’t hear that from the media. The media’s not throwing hosannas at the Romney campaign for the Governor’s brilliant campaign, but it should.

The Governor got his voice. His campaign had narrowly been focusing on the economy. The Obama Campaign has been all over the place, campaigning with the politics of personal destruction against the Republican.

Sooner or later, the President will speak off-teleprompter, and his spontaneous remarks will get him into trouble.  Last month it was “The private economy is doing fine.” A week ago Friday it was his impromptu remark “If you’ got a business – you didn’t build that. Somebody else made that happen.” Yes, you owe your success to someone else, inferentially the government, not hard work on your part.

That set the Governor off this week. In one appearance in the battleground state of Ohio he asked the audience “Let me ask you this – did you build your business? If you did, raise your hand.”

Many attendees did, along with signs that said “I built my own business.”

He also lashed out directly at the President’s gaffe or Freudian Slip, whichever: “The idea to sat that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor … to say something like that is not just foolishness, it is insulting to every entrepreneur, every innovator in America, and it’s wrong.”

He was just getting warmed up. He noted that President Obama had held 100 fundraisers in the past six months, but had not once met with his Jobs Council. He emphasized the President is not creating jobs for us, but that his “priority is trying to keep his own job, and that’s why he’s going to lose.”

It’s not so much what Governor Romney said, it’s how he said it – with emotion, from the heart. He found 

 his voice. He wasn’t dull, droll, pedantic, or half-hearted. He felt it, and so did the crowd. They were moved. Check out the videos.

We are witnessing a replay of 1980. The voters realized that President Carter was not up to the job, but they weren’t convinced that Governor Reagan was a wise alternative. Governor Reagan’s acceptance speech at the Republican Convention assuaged their doubts, and he elected in a landslide.

We know that President Obama should be given a retirement present on January 21, 2013 at 12:01PM as Governor Romney is inaugurated as President – a Chevy Volt.

If Governor Reagan delivers his speech as he did last week, with the same contents and emotion, the public will elect him in a landslide.

Governor Romney had a great week for other reasons. It is clear that his campaign is out-raising and under-spending the Obama Campaign, which is spending more than it takes in. The republicans raised $106 million in June compared to $70 million for the Democrats. The Republicans also have $170 million in the bank compared to $147 million for the Democrats. This Obama Presidential Campaign is not going to drown out an underfunded Senator McCain this year.

The Obama campaign spent $58 million in June, $38.2 million in ads, negative ads, directed at Governor Romney nationally and in battle ground states. It was trying to define the Governor in a negative way, so that voters would view him as a greater threat to their well-being and the economy than the incumbent, who is running away from his record.

They threw everything at Governor Romney, Bain Capital, outsourcing, tax returns, hiding offshore assets, possible felon, Medicare. The truth, falsity or relevance of the charges was irrelevant. This was the Chicago Rules applied to Presidential Politics.

Obama took his best shot at Romney, who stands tall. It failed, serving only to further diminish the current Presidency.

The polls fluctuated little, with either leading or trailing by a few points, both nationally and in the battleground states. Polls at this stage are hardly indicative of anything, except that the President’s positives have not risen while his negatives have.  The incumbent President cannot break 50% favorability. We are looking at bad omens for the Obama Campaign.

The Romney Campaign is now ready to go on the attack against a weakened Obama campaign. Indeed, check out some of the recent Romney ads which parallel his statements above.

How else do we know the Governor had a great week? Republican pundits are politicians were decrying 2-3 weeks ago his failure to take off the gloves in running a lackluster campaign. Questions were raised if he really had the fire in the belly. No more! They liked what they saw his week.

Governor Romney found his voice last week, and has the funds to amplify it.

Thoughts on the Aurora, Colorado Shootings

These are difficult words to write.

None of our words or acts can undo that which was done. We cannot restore the lives of 62 people, their families, friends and lovers to what they were 48 hours ago.

 Colorado has just experienced the third mass shooting in recent years. The inexplicable carnage in these random acts of violence defies the norms of civilization and humanity.     

The first was, of course Dylan Klebold and Eric Harris at Columbine High School on April 20, 1999. 12 students and a teacher died, along with the suicides of the two attackers.

The second, which received less attention, was on December 9, 2007. 24 year old Matthew Murray, who had been expelled from the Missionary Training Program at the Youth With a Ministry in Arvada, Colorado. He returned to the center shortly after midnight and shot two to death and wounded two others. He later drove 70 miles to the parent church, The New Life Ministry in Colorado Springs, and again opened fire, killing two and wounding two before a security guard shot him. The wounds were not fatal, but he proceeded to commit suicide.

Yesterday was the theater shootings at the Century Theater in Aurora, Colorado, killing 12 and wounding 50. The assailant, James Holmes, surrounded peacefully, an equally inexplicable ending.

We feel for the victims, the lives tragically cut short and the injured, some grievously disabled for life, and all emotionally scarred for life. We comfort the survivors.

We create memorials, temporary and permanent, establish funds to which Americans generously contribute, and then move on, as we must. The living continue to live their lives.

We ask questions too. How can we prevent future tragedies of this nature? What caused the mad man, and it is almost always men, to commit this act? How about stricter gun controls?

The underlying problem is that Americas has a plethora of targets, and we cannot safeguard them against random acts.

I did a study several years ago (available on ssrn.com if you suffer from insomnia) on school safety and discovered how pervasive these seemingly random acts are in America. Here is a partial list of the often mislabeled “Going Postal” syndrome: McDonald's, Dennys, Albertsons Supermarkets (with a samurai sword), airports, beauty salons, car washes, casinos, churches, city halls and courthouses, computer firms, factories, gas stations, government offices, housing complexes, malls, Indian reservations, subways, and even law firms, a movie theater, and an Amish school. The “D.C. Sniper” terrorized the Washington, D.C. metropolitan area. A Congresswoman was shot a year ago at a rally in a supermarket parking lot in Tuscon, Arizona. 

Weapons include guns, knives, poisons, chemicals, and cars.

And that's just in this country.

The assailants may have a grudge against the specific victims or establishments, or just a generalized grievance. They have included present and former employees, students and even teachers. Some acts are hate crimes. Others are by religious zealots.

The attackers are sometimes known to be “creepy,” if not dangerous. Many though are a total surprise, such as the February 14, 2008 shootings at Northern Illinois, where a graduate returned and killed 5, wounded 21, and then committed suicide. He had gone off his meds before the tragedy, a not uncommon occurrence.

Precautions can reduce, but not eliminate the risks. Normal security measures may be ineffective against these killers. A police officer was on duty at Columbine, but could not be at all places at all times. A student at Red Lake High School killed his grandfather, a tribal officer, and grandmother the night before, stole his grandfather’s guns, and then at the school’s metal detector the next day, killed the unarmed security officer, five students, and a teacher.

The challenge of society is to protect everyone and everything against every conceivable threat in our large, complex society. The threats are infinite while the resources are limited. Therefore, we must prioritize and can only require reasonable efforts to minimize the chances or consequences of attacks.

Schools and law enforcement are now scrutinizing the web, looking for potential killers before they can act. It’s amazing how much damming revelations are posted on line, even in social network sites.

Protocols are often in place to minimize the risks of an incident, as well as facilitate response efforts.

Lessons are learned from past tragedies, and steps implemented for the future. But the risks remain because these random acts of violence, these mass tragedies will occur again. 

Law enforcement has an impossible job, but they have many successes.

 

We go on and live our lives, just as we live in earthquake country, because we figure it will not happen to us or our loved ones.

The NCAA Bench Slapped Caltech

The NCAA found a school to throw the book at – just short of the death penalty

The California Institute of Technology with 978 undergrads has felt the wrath of the NCAA.

Caltech, a Division III institution, which offers no athletic scholarships, goes to no bowl games, and has no TV contracts.

Caltech, a university with brilliant scholars and pathetic athletes, with no desire to change the balance.

Caltech with one of the greatest losing programs in NCAA history.

The Caltech men's basketball team beat Bard College 81- 52 on January 7, 2007 to snap a 207 game losing streak. They beat Occidental (The President's alma mater) 46 – 45 on February 22, 2011 on a free throw with 3.3 seconds left to win its first conference game since 1985. The soccer team beat Cal Lutheran 1-0 on October 22, 208 to break a 201 game losing streak.

Caltech does not pose a threat to the athletic integrity of any school.

Caltech’s alumni and faculty have won 32 Nobel Prizes, certainly more than the traditional football powers of Michigan, Notre Dame, Ohio State, Texas, Alabama, Auburn, Nebraska, Oklahoma, and LSU combined.

Caltech self reported possible violations of the NCAA’s full time student rule to the organization when new Athletic Director Betsy Mitchell discovered the violations.

The NCAA rules preclude part-time students from playing NCAA sports.

Caltech’s policies allow students to sample courses for three weeks before formally enrolling in them. Here’s a limited smorgasbord from which to choose: 1) Signal Transducion and Biomechanics in Fukaryoic Cell Morphogenesis, 2) Biophysics of Macromolecules, 3) Heterogeneous Kinetics and Reaction Engineering, 4 Synthesis and Analysis of Organic and inorganic compounds, 5) Computational fluid dynamics, and 6) Marko Chains, Discrete Stochastic, Processes and Applications. Caltech is offering its consumers, the students, the opportunity to make informed choices on their course selections.

However, the NCAA rules makes them part-time students until fully enrolled. 30 Caltech students were technically part-time students by NCAA rules,and thus ineligible to compete in NCAA sports..

Caltech proposed as penalties to the NCAA a one year post season ban, a 1 year ban on off-campus recruiting, vacating wins by teams with ineligible players, and a $5,000 fine.

The NCAA often has trouble finding what it’s not looking for even when it’s in plain view. The NCAA this time looked Caltech’s gift horse in the mouth, and raised the penalties to a public sanction and added three years of probation. It expressly found the dreaded failure of institutional control, as related to the academic program.

Imagine that, the NCAA knows more about academic integrity and quality than Caltech.

The only conceivable sanctions the NCAA did not levy on CalTech were the "death penalty" and the forfeiture of its name, such that CalTech would once again become the Throop Polytechnic Institute.

What again was Caltech's heinous violation?

Technically playing ineligible players.

Did the orange and white Caltech Beavers gain an unfair advantage on the field?

The record certainly doesn't show it.

Were the recruiting hostesses providing extra hospitality to recruits?

No.

Were recruits receiving cash?

Nope.

Did a Secret Santa bestow luxury cars on the players?

Not that we know of.

Did the cheerleaders offer special rewards for victories?

      What matters at CalTech - brains or brawn?

Were the basketball players receiving excessive compensation for summer employment?

Check with their employers - NASA, Jet Propulsion Lab, the federal government, et al.

Did parents move into a new home financed by a athletic booster?

Perhaps, conceivably by an academic supporter, but not likely.

Were tutors writing papers for the dumb jocks?

At Caltech?  The average SAT at Caltech is 2-3X that of many scholarship holders at Division I powerhouses.

Did the Caltech scholar athletes receive their high school degrees from a diploma mill?

See above

Were players, and possibly coaches, committing sexual assaults or domestic abuse, stealing cars, stereos or computers, misusing credit cards, displaying alcohol or drug problems?

No evidence exists.

We're professors changing grades to retain player eligibility?

     Are you kidding?

Did the scholar athletes voluntarily engage in involuntary unsupervised, supervised conditioning non-program programs?

Caltech students are into mind games.

The NCAA is obsessed with maintaining the academic integrity of its member schools. It believes in the shibboleth of the scholar athlete, except perhaps with the "One and Done" basketball program at Kentucky.

The NCAA full time student rule seems simple, but it as convoluted as the rest of the NCAA's rule book.

Matt Leinert quarterbacked USC to a perfect season and the national title in 2004. It was his senior year; he could have turned pro for a large contract. Instead, he returned to USC as a fifth year senior. He wanted to win another title.

Of course, he had to technically enroll as a student. Matt Leinert needed only 2 units for graduation, so he enrolled in a 2 hour ballroom dancing course. Two credit hours is normally substantially less than full-time status, but not for the NCAA.

Will the NCAA impose the death penalty on Caltech if it commits further violations, by the arcane NCAA rulebook, in the next three years?

The NCAA has no problem with majors, such as undecided or general studies. Which comes first, the scholar or the athlete?

The NCAA also allows freshmen to play before their first classes.

Has the NCAA ever asked itself why it is coming into increased ridicule?