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Sotheby’s agrees to pay $6.25 million in tax fraud claims

Sotheby’s agrees to pay .25 million in tax fraud claims

Sotheby’s has agreed to pay $6.25 million to New York State and implement several reforms to resolve a tax fraud lawsuit brought by Attorney General Letitia James. The lawsuit accused the auction house of helping clients evade sales taxes on millions of dollars worth of art purchases.

The settlement, announced Thursday, addresses allegations that Sotheby’s used fraudulent tax practices to secure tax benefits for at least eight clients between 2010 and 2020. The attorney general first filed the lawsuit in late 2020 after a four-year investigation that asked the auction house to provide High-level customer documentation. The house reportedly allowed these clients to use “resale certificates,” a mechanism that allows professional art dealers to avoid paying New York sales taxes on art they acquire in business transactions.

James claims that these clients included a major collector who purchased $27 million worth of artwork for their personal collection from Sotheby’s between 2010 and 2015 using resale certificates. Sotheby’s is said to have accepted the collector’s certificates even though the person was known not to purchase art for resale; According to the attorney general, employees of the auction house even helped install some works in the collector’s home. The AG previously settled with the collector’s company, requiring them to pay more than $10 million in taxes, penalties and damages.

“No one should cheat the system and escape paying the taxes they owe,” James said in one statement. “Sotheby’s deliberately broke the law to help its customers avoid millions of dollars in taxes, and now they’re going to pay for it. Every person and every business in New York knows they have to pay taxes, and when people break the rules, we all lose.”

Sotheby’s has not admitted any wrongdoing in connection with the settlement and remains “committed to full compliance with all applicable laws,” a spokesperson said. “These allegations relate to activities dating back many years – in some cases more than a decade – and Sotheby’s has provided much of the evidence that the AG used to reach a settlement with the taxpayer alleged in the complaint six years ago referred.”

In addition to the $6.25 million financial settlement, the auction house has agreed to implement reforms, including a revised policy on the use of resale certificates. Sotheby’s will also provide additional training for its employees on the relevant provisions of New York tax law, as well as enhanced coaching to ensure staff can properly assess whether art buyers are purchasing with the intent to resell.

The auction house’s alleged misconduct was further compounded by an earlier case involving Porsal Equities, a company linked to an unnamed client that settled for $10.75 million in 2018 for similar misuse of resale certificates in New York.

The settlement comes as Sotheby’s finances are struggling especially close supervision due to the well-known debt problems of the majority shareholder, the French telecom scion Patrick Drahi. The auction house recently completed a $1 billion deal with Abu Dhabi’s sovereign wealth fund, most of which will go toward paying down debt.