If a foreign estate owns works of art located within the US, it poses an interesting question. The Internal Revenue Code states the value of the US gross estate for a non-US citizen includes property, which at the time of his death is situated in the US.[1]
Let’s say Sam, a non-US citizen, owns works of art. At the time of his death, they are located in the US. It may appear that Sam would have to file a US estate tax return that includes the value of his art work. However, the Internal Revenue Code provides an exception for works of art on loan for an exhibition.[2] If the works of art are present in the US solely for exhibition purposes, loaned to a public gallery or museum, the estate may exclude the net earnings. This inures to the benefit of any private shareholder or individual on exhibition at the time of the owner’s death.[3] A foreign estate can also exclude from a US estate tax return any earnings if the works of art are en route to or from an exhibition in a public gallery or museum.[4]
To determine if works of art should be included in a US estate of a foreign citizen, you must ask two questions:
- why are the works of art in the US and
- where are the works of art?
For example, say Sam loaned 10 pieces of art work to a friend who lives in the US. The friend displays the art work in his office. Are the works of art included in Sam’s US estate? The answer is yes. He loaned the art work to a friend who displayed them in his office, not a public museum or gallery. It fails the test. Now, say Sam had loaned the works of art to his American friend to exhibit in his small public gallery. In this case, Sam’s estate excludes the works of art from his US estate tax return.
The size of the public gallery or museum does not matter. It must simply be a public one.
To qualify for the exclusion, the works of art must in the US “solely” for exhibition purposes. If Sam’s art is exhibited at a public gallery, but is also available for sale, then the purpose of the trip is no longer deemed “solely” for exhibition purposes.
Earnings from works of art are deemed property outside the US when the works are solely for exhibition at a public gallery or museum. They can then be excluded from a foreign citizen’s US estate tax return.
[1] IRC §§2103, 2106.
[2] IRC §2105(c).
[3] Treas. Reg. §20.2105-1(b).
[4] Id.
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