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Sotheby's settles for $6M over alleged art purchase tax fraud

LEGAL NEWSLINE

Thursday, November 21, 2024

Sotheby's settles for $6M over alleged art purchase tax fraud

State AG
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Attorney General Letitia James | Official website

New York Attorney General Letitia James and Acting Commissioner for the New York State Department of Taxation and Finance, Amanda Hiller, have reached a $6.25 million settlement with Sotheby’s, Inc. The settlement addresses allegations that the auction house used fraudulent methods to help clients secure tax breaks on art purchases amounting to tens of millions of dollars.

According to a lawsuit by the Office of the Attorney General (OAG), Sotheby’s encouraged clients to falsely claim they were purchasing art for resale. This allowed them to avoid paying sales tax from 2010 to 2020. As part of the settlement, Sotheby’s is required to pay $6.25 million and implement reforms ensuring compliance with New York tax laws.

Attorney General James stated, “No one should be allowed to cheat the system and escape paying the taxes they owe.” She emphasized that "Sotheby’s intentionally broke the law" which led to this legal action. Acting Commissioner Hiller added that a prominent auction house had facilitated wealthy clients in avoiding sales taxes, commending Attorney General James's efforts in addressing this issue.

The lawsuit detailed instances where Sotheby’s accepted resale certificates from clients who were not resellers but rather buying for personal collections. One major client identified as "the Collector" purchased $27 million worth of artwork using these certificates under false pretenses. Evidence showed that between 2012 and 2020, at least seven other clients also improperly benefited from such practices with Sotheby's knowledge or assistance.

In addition to financial penalties, Sotheby’s must ensure its employees are well-versed in relevant tax laws and verify whether art purchases are intended for resale or personal use. This case follows a previous settlement involving Porsal Equities, linked to "the Collector," which resulted in over $10 million paid in taxes and penalties.

Attorney General James acknowledged contributions from the New York State Department of Taxation and Finance in this case. She highlighted ongoing efforts against tax evasion by citing recent actions taken against various entities failing to comply with state tax obligations.

The matter was managed by Assistant Attorney General Sujata Tanikella along with support from other members within the Taxpayer Protection Bureau under Executive Deputy Attorney General Christopher D’Angelo's oversight.

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