[NEW YORK] Art dealers and collectors are coming under increasing scrutiny for offenses from fraud to tax evasion, with New York's top cop kicking off his own campaign against tax cheats on Tuesday.
Attorney General Eric Schneiderman announced two tax settlements - one with Aby Rosen, a New York real estate developer with a storied half-billion dollar art collection, and another with a sales executive at the prominent Gagosian Gallery Inc. More are on the way, according to people familiar with the inquiries.
Mr Rosen - a Manhattan developer known for displaying works by Picasso and Warhol at marquee properties including the Seagram Building and Lever House - agreed to pay US$7 million related to claims that he avoided paying sales and use taxes on US$80 million worth of fine art he had commissioned or bought since 2002.
In a separate deal, Mr Schneiderman's office said it had reached a settlement with Victoria Gelfand, a Gagosian Gallery director, who agreed to pay US$210,000 in unpaid taxes on more than 30 pieces of art she had purchased through her privately owned companies.
The settlements don't include admissions of wrongdoing.
The accords are part of a wave of investigations into financial dealings in the robust art market. Soaring prices and secrecy in the art world - as well as the lack of regulation surrounding major transactions - have in recent years brought allegations that collectors and dealers have used prized works to launder money, dodge taxes and defraud purchasers and investors.
In China, Switzerland and across Europe, governments have placed increased scrutiny on the ways major art collections are used to hide ill-gotten wealth and avoid taxes.
US officials have recently taken an interest in the art world, with investigations touching on Swiss collector and dealer Yves Bouvier and Gagosian chief Larry Gagosian, both of whom have denied wrongdoing.
The New York Attorney General's office said its inquiry was focused on the ways wealthy collectors and dealers structure their transactions to skirt state tax laws and deprive the state treasury of millions of revenue. People within the New York art world say the two settlements announced Tuesday are part of a more sweeping review by Mr Schneiderman's office.
"There are a number of cases that are not even public that are going on right now," said Gary Castle, a partner at accounting firm Anchin Block & Anchin in New York, who works with collectors, galleries and art foundations. "We are seeing notices and inquiries about specific transactions. We've seen them over the past year." The Attorney General's office declined to comment on the breadth of its investigation but said it was determined to recover unpaid taxes wherever it can find evidence of abuse.
"We are committed to rooting out tax abuses wherever we find them, especially in the art world, where the difference can be hundreds of thousands - if not millions - of dollars in lost tax revenue," Mr Schneiderman said.
"Law-abiding New Yorkers should not be stuck footing the bill for those who fail to pay their fair share." The settlements announced Tuesday both involve misuse of a provision of New York tax law that does not require sales or use tax on art work that is intended for resale.
The Attorney General said Mr Rosen used two companies to buy and commission more than US$80 million in artwork that he said wasn't subject to tax because it was intended for resale. In fact, Schneiderman said, Mr Rosen used the art pieces as if they were his personal possessions, displaying some like in his home and using others to enhance his business.
Mr Rosen is the co-founder of RFR Holding LLC, a real estate company that displays fine art throughout a portfolio that includes the W South Beach Hotel in Florida and the Gramercy Park Hotel, according to its website. The glass lobby of the firm's Lever House serves as a contemporary gallery and has displayed works by Damien Hirst, Jeff Koons and other artists, according to the building's website.
Among the 200 pieces Mr Rosen agreed to pay taxes on are Andy Warhol's "Howdy Doody," which he bought for US$866,500 in 2011; Roy Lichtenstein's "Sock," which he purchased for US$5.25 million in 2011; and a Damien Hirst sculpture, "Virgin Mother," for which he paid US$2.5 million.
Mr Rosen said all the artwork he buys and shows at his properties is for sale.
"The law is behind on how art gets shown and distributed," Mr Rosen said in an interview. "The lobby is my gallery. The hotel is my gallery. I like transactions." Mr Rosen said he had done nothing wrong.
"They are just looking for tax revenue, let's be honest," he said of the state. "But I want to move on. I have the money to pay."
Ms Gelfand's two companies bought and sold more than 30 works for more than a total US$1 million using certificates designating that they would be resold, Mr Schneiderman said.
From 2005 to 2013, the companies paid no sales or use tax - a tax on items put to personal use after saying they'd be resold - while displaying some of the pieces in Gelfand's home, he said.
The Gagosian Gallery, where Ms Gelfand works, isn't accused of wrongdoing. Ms Gelfand's lawyer said she doesn't "necessarily agree" with Mr Schneiderman's conclusions.
"These were purchases through a personal company and had nothing to do with the Gagosian Gallery," said Jo Backer Laird, a lawyer who represents Ms Gelfand.
"The works were fully intended to be resold. In fact, efforts were made to resell them. Victoria settled because of the department's position that works that are intended for resale but are exhibited in the home of the taxpayer are subject to sales and use tax."