Forbes Magazine
Klimt-astic Deal
William Heuslein, 07.24.06

Maria Altmann won back valuable Klimt paintings that were looted by the
Nazis and sold the best for a nice bundle. Now, the tax news is pretty good,

When the news broke in June that FORBES rich lister Ronald Lauder and his
Neue Galerie bought Gustav Klimt's celebrated 1907 golden portrait of Adele
Bloch-Bauer for a chart-topping $135 million, it was yet the latest amazing
turn in a seven-decade saga for 90-year-old Maria Altmann and her family,
who lost the artwork to Nazi looting but eventually recovered it. It
couldn't get much better, huh?

Well, the exclamation point on this deal is that the elegant Mrs.
Altmann--niece of Adele and her husband, Ferdinand Bloch-Bauer, a prominent
Viennese sugar magnate--and her fellow heirs evidently don't have to pay any
federal tax on the money. This dispensation comes courtesy of the folks in

As part of the 2001 tax-cut legislation, Nazi victims and their heirs don't
have to pay federal income taxes on restitution payments or assets they
recover through settlements with foreign governments. Earlier this year the
Bloch-Bauer heirs were awarded, through a unanimous arbitration ruling in
the Austrian courts, five Klimts (two portraits of Adele and three
landscapes) looted in 1938. Because of the 2001 law the tax basis for Mrs.
Altmann and the other four heirs (three of whom are from Canada) was the
fair market value at the time of the recovery. Canada doesn't tax
compensation and restitution payments. Mrs. Altmann, a resident of Los
Angeles and a former dress shop owner, shouldn't be taxed by the state of
California, either.

Seems that Congress didn't see this one coming. The Joint Committee on
Taxation estimated the budget impact of the 2001 provision would be forgone
revenues of just $27 million over nine years. And the Bloch-Bauer heirs have
sold only one painting so far, albeit the most valuable of their Klimts. No
word yet on their plans for the other paintings. Los Angeles lawyer Steven
Thomas, who handled the Klimt sale for Mrs. Altmann, would not comment on
her tax situation.

The Feds are likely to grab some ordinary income taxes from another Los
Angeles lawyer, who was instrumental in the legal proceedings to obtain the
looted art. That's E. Randol Schoenberg, 39, the son and grandson of
longtime Altmann family friends (and grandson of two Austrian composers,
Arnold Schoenberg and Eric Zeisl). The original contract called for
Schoenberg to receive as his fee a 40% cut of whatever assets were
recovered, according to people familiar with the agreement. On paper, that's
$54 million for this one painting. Schoenberg declined to discuss his fee,
other than to note that "I have a longstanding relationship with Maria.
Everybody's very happy."