New York Attorney General Accuses Sotheby’s of Helping Rich Collectors Avoid Sales Tax

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Going once, going twice, and… the D.A.’s not buying it!

The world’s most famous auction house landed in even hotter water this past weekend when the New York attorney general charged Sotheby’s with helping some very rich art collectors avoid paying very large sales taxes on their purchases. Between the Sotheby’s investigation and the IRS’s crackdown on wealthy individuals this tax season, upper-crusters had better make sure to cross their t’s and dot their i’s. Or at least start looking for new ways to write them off.

Gone Fishin’ and Caught Something

The lawsuit, originally filed in 2020, accused Sotheby’s of aiding an affluent shipping executive in dodging taxes. The auction house allegedly identified the executive – who had purchased $27 million worth of fine art – as an art dealer, which qualifies them for exemption from city and state sales taxes. According to court documents filed by New York AG Letitia James, the buyer was merely a collector.

Going off that one instance, James requested Sotheby’s hand over more client information to suss out further cases of tax fraud. The auction house hit back at her, calling it a “fishing expedition” that would not “yield evidence of wrongdoing.”

But after an investigation, well…

  • On Friday, James added seven more collectors and a handful of auction house employees, none of whom were named, to the lawsuit. In court documents, she called the shipping executive “only the tip of the iceberg.”
  • The collectors allegedly worked with Sotheby’s to avoid paying taxes on gifts for family members, Tiffany lamps, and Jewish ceremonial art. Now, James is seeking court permission to conduct almost two dozen more depositions of people involved in the alleged practice, Bloomberg reported.

One for you, 19 for me: James isn’t the only one on the hunt for wealthy tax frauds. Earlier this month, the IRS announced its 10-year plan to transform the agency by putting greater scrutiny on ultra-rich corporations and individuals who are hiding money from the government. The IRS’ overhaul comes with a whopping $80 billion injection of taxpayer funds via the Biden administration’s Inflation Reduction Act. It is the single largest investment in the agency’s history, according to The New York Times, and already the IRS plans to use the money to hire 20,000 new employees in the next two years. Yeah, I’m the taxman.