Deep in the art of taxes

Elizabeth Gray August 11 1980

Deep in the art of taxes

Elizabeth Gray August 11 1980

Deep in the art of taxes

Elizabeth Gray

In the curators’ offices at Canada’s National Gallery in Ottawa they keep a list of lost opportunities. The list includes items such as the Gernsheim collection of early European photographs offered to Canada in the 1950s but never pursued. In 1919, Lord Beaverbrook wanted to donate money toward a new building. The National Gallery still does not have a new building. “There is a pathological suspicion in this country of people who want to donate works of art,” says Mimi Cazort, the National Gallery’s curator of drawings. “Canadians seem to feel it is immoral to collect art and immoral to pay for it.”

The morality or immorality of the escalating price of art has perhaps never been posed in such dramatic terms in Canada as right now. In an intensely secretive battle over an essentially public question, the lines are drawn close to breaking point between custodians of the public purse and custodians of our cultural heritage. The combatants are dealers, investors, collectors and tax officials in Ottawa, Montreal, Toronto and Chicago. At stake is one of the world’s finest photographic collections, the international reputation of the National Gallery and the tax dollars of average Canadians. Millions of tax dollars.

Put simply, an anonymous group of Canadian investors has offered to buy the photographic collection of a Chicago lawyer named Arnold Crane and donate it to the National Gallery under the terms of the Cultural Property Export and Import Act, which should entitle them to a 100-per-cent tax deductibility and no capital gains tax. Since the act came into effect in 1977, the 10-member review board charged with implementing it has issued 468 tax certificates to a value of $37.7 million. Priceless treasures have thus found their way into our impoverished cultural institutions. And these tax writeoffs have boosted the morale of Canada’s investment community.

Then came Crane, and suddenly, last March, gnomes in Revenue Canada began wondering aloud when a writeoff becomes a ripoff, and the system began to come unstuck. Last March the National Gallery formally applied to the Cultural Property Export Review Board for the cherished tax status on behalf of its would-be Crane donors. As required, the gallery’s application included two appraisals of the collection’s fair market value done by outside evalu-

ators. The evaluators, Harry Lunn Jr. of Washington and George Rinhart of New York, both high-rolling American art dealers, were hired by the anonymous donors, in keeping with Canadian practice. They set the fair market value of the Crane collection at a staggering $17 million plus.

Members of the Cultural Property Review Board, including art establishment figures such as Roy Fraser Elliott and Doris Shadbolt, were unanimous in their enthusiasm. They granted the tax certificate. But the donors wanted more. Before finalizing their purchase from Crane, they wanted a ruling from Revenue Canada that its taxmen would not come back to question the evaluation at some later date. To make their case they had to let Revenue Canada in on the price they have agreed to pay Arnold Crane. Revenue Canada isn’t telling, but informed speculation puts it between $7 and $8 million. An overnight difference of close to $10 million in the market value of a collection of photographs, no matter how good, was too much for Revenue Canada. That difference, said the gnomes, is profit, and should be taxed as such. So far, despite discreet interventions from people such as Ian Christie Clark, secretary-general of Canada’s National Museums, Revenue Canada has refused the donors their ruling. They’re still negotiating, and as the sale awaits completion a lot

of people are developing nervous tics.

One is Arnold Crane, the eccentric Chicago attorney who bought his first photographs as a package from a Paris dealer for $30,000 in the late ’60s. They turned out to be early Daguerres, Atgets and Talbots, and Crane was quick to realize their worth. He has collected obsessively since then and today owns 14,000 examples of French, British and American photography spanning more than a century from the 1830s. Crane would be happy to see his collection, rated as one of the three finest in the world, go to Canada, whose National Gallery and, in particular, its curator, James Borcoman, he knows and respects. But heavy pressure from American institutions such as the Metropoli-

tan Museum of Art in New York may make him change his mind.

Right now, Crane isn’t answering his phone unless it is to take calls from people such as Bill Baker, 34, a Montreal dentist. Baker, with his legal adviser and friend, Ken Salomon, a Montreal lawyer, has put together the consortium of investors whose names are still such a closely guarded secret. Baker has been on a long and isolated holiday and Salomon was reluctant to comment but, when pressed, admitted that “the difficulties are not unexpected. This is a new statute that has not been thoroughly tested. And it is a major transaction. The magnitude of the collection and the dollars involved have made the authorities wary and suspicious.”

But of all the players the one suffering the most anguish is James Borcoman, the National Gallery’s curator of photographs. Borcoman began buying photographs in the late ’60s when, as education curator, he slipped them in under his frames budget because no one else could be convinced of their value. Today, his 9,000-item collection is hailed abroad if unsung at home. “Any-

where you go in the world in this business, people know about Jim Borcoman in Canada,” says Toronto gallery owner Jane Corkin. “He has done wonders for the National Gallery and if he gets the Crane collection he will have put us on a par with Eastman House in Rochester.”

It was Corkin who introduced Borcoman to Crane in Toronto five years ago. Since then, Borcoman has waited and plotted—waited for the legislation that now offers incentives to investors to buy a collection selling for 15 times his gallery’s annual purchasing budget; and plotted to find the investors who would offer that money to Crane. Similar legislation has been a fact of life in the U.S. for years and has allowed American in-

stitutions to flourish on donations while Canada’s went hungry. But there is an important difference in the American system that narrows the possibility of ripoff over writeoff. A prospective donor to a U.S. institution may not hire his own evaluators; his donation is appraised by three experts unknown to him, hired by an independent body. Although no one is disputing the quality of the Crane collection or the professionalism of its appraisers, even its most ardent boosters admit to the nagging possibility of greed getting the best of altruism. How can a collection be assessed at $17 million for tax purposes today when its purchasers have yet to buy it tomorrow for $10 million less?