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David Smith’s Circle II: Too Big To Tax? 

David Smith’s Circle II: Too Big To Tax? 

David Smith.  Circle II . 1962. Painted steel, 105 1/2 x 110 11/16 x 23 5/8 in. (268 x 281.1 x 60 cm). National Gallery of Art, Washington, D.C. Ailsa Mellon Bruce Fund, 1977.60.2 © The Estate of David Smith. Photograph by Emily Lanza

David Smith. Circle II. 1962. Painted steel, 105 1/2 x 110 11/16 x 23 5/8 in. (268 x 281.1 x 60 cm). National Gallery of Art, Washington, D.C. Ailsa Mellon Bruce Fund, 1977.60.2 © The Estate of David Smith. Photograph by Emily Lanza

When is a sculpture too big for the art market?  The estate of David Smith faced this question when calculating the estate tax on 425 sculptures by Smith, many of significant size, owned by the artist at the time of his death.  According to the Internal Revenue Code, an estate’s tax liability depends on the fair market value of property held by the estate.  However, the introduction onto the market of a large number of a single artist’s works prompted by an event such as an artist’s death could theoretically depress the price under the basic concept of supply and demand.  So how can an estate ascertain a fair market value in such a case?

The sculptures in Smith’s estate reflected his pioneering style of welding together abstract metal forms.  When determining the estate tax liability, the Smith estate and the Internal Revenue Service (IRS) responded differently to the particular qualities of Smith’s sculptures, resulting in two inconsistent valuations and a tax deficiency of almost $2.5 million on behalf of the estate.  To reach a “fair value,” the U.S. Tax Court in Estate of Smith v. Commissioner resolved these differences by applying the blockage rule, a standard normally used in the securities context, to compute a fair market value and account for the particular market behavior of these innovative works.  Prompting the first application of this rule to art, Smith’s innovative sculpture ultimately shaped estate tax law in addition to influencing later art movements.

Smith & Abstract Expressionism in his Circle Series

David Smith (1906-1965) was a painter and self-taught sculptor. (Wilkin). Smith enrolled at the Art Students League in 1926 to study painting and drawing.  Inspired by the photographs of metal sculptures by Pablo Picasso and Julio González, Smith made his first welded sculpture in 1933, using the skills he acquired during summer jobs at a car factory. 

Smith’s work is most frequently associated with the Abstract Expressionist movement, as he translated the painterly concerns of this style into sculpture.  The use of abstraction to convey strong emotional or expressive themes linked the artists of this movement together, including Smith.  (Anfam).  Abstract Expressionist art fosters a dynamic relationship between the work and the viewer, with disparities from different viewpoints prompted by extremes of scale and color.  (Anfam).

Relying on his painting background, Smith revolutionized sculpture by using welding techniques to “draw in space.”  With this primarily industrial technique, Smith forced different forms into new relationships and brought “disparate things into unexpected proximity by dispersing them in apparently illogical ways or by compressing them into a single plane.”  (Wilkin).  By forming his sculpture not from a single block but with a collection of elements welded together, he challenged preconceptions of what sculpture should be.  (Wilkin); (Merkert 1986, 37).  For Smith, “there [were] no rules in sculpture.”  (Merkert 1986, 48).  Smith’s style and sculpture influenced a generation of British and American minimalist sculptors, including Anthony Caro (1924-2013) and Donald Judd (1928-1994).  (Anfam). 

Smith’s painting background also directed his application and use of color.  Painting the surface of his works and adding color provided an innovative way to arrive at a new concept of sculpture for Smith.  (Merkert 1986, 33-34).  By introducing color as a “foreign medium” for sculpture and by encouraging it to interact with the sculpture’s purely abstract construction of three-dimensional forms, Smith allowed color “to become the very means of dissolving the boundaries between two media, with their apparently conflicting rules.”  (Merkert 1986, 44).  

Smith’s Circle Series demonstrates his ability to blur the boundaries between painting and sculpture with these innovative techniques.  In this particular series, Smith used paint in bright contrasting colors to emphasize the geometric configurations.  In line with Abstract Expressionism, the abstract shape of the circle emphasizes the act of looking, as if through a lens. Circle II (1962), one of the sculptures of this series, is of painted steel weighing 820 pounds.  A red circle is sitting on a base.  A black rectangle is welded on one side of the circle towards the top while a white rectangle is welded on the other side.  Half a cylinder with a red painted exterior and black interior is also welded on the circle towards the base.  Smith had owned and displayed sculptures from the Circle Series, including Circle II, at his home in Bolton Landing, New York at the time of his death, when they became part of his estate and subject to the valuation dispute.  (National Gallery of Art).

Estate Tax & Blockage

The federal estate tax is a tax levied against the estate of a decedent, which must be paid by the estate upon the transfer of property.  The top tax rate is statutorily set at 40%.  (26 U.S.C. § 2001).  The calculation of federal estate tax liability involves a series of adjustments and modifications of a tax base known as the “gross estate.”  The gross estate comprises of all property, including real or personal property such as artwork, that the decedent owned on the date of his or her death.  (26 U.S.C. § 2031).  The value of the property included in the decedent’s gross estate is the “fair market value” on the date of the decedent’s death.  According to estate tax regulations, the fair market value is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”  (Treas. Reg. § 20.2031-1(b)).  Actual sale prices of comparable property can help to determine the fair market value. (Steinkamp 1994, 344).  This valuation method uses the market in which the particular goods are mostly commonly sold to the public.  For art, this market can be retail through private sales or at auctions.  (Steinkamp 1994, 359). 

Determining the fair market value of the estate of an artist presents some unique challenges.  Introducing a large number of a single artist’s works onto the market would theoretically depress the price based upon the concept of supply and demand.  For the valuation of stocks (property that an estate would likely possess in multiples), the estate tax regulations permit the estate’s executor to reduce the aggregate value of the stock held by the estate if the executor can show that the block of stock is too large to be sold on the existing market in a reasonable time without causing a drop in price.  (Treas. Reg. § 20.2031-2(e)).  Under this valuation analysis, blocks of property may have a value less than the sum of the prices that the individual items in the block would command.  (Bogdanski 2018, § 4,02).  When valuing a block, courts do not assume that the entire block would be sold on a single date but consider the amount the block would have brought if liquidated over a reasonable period of time by someone who is familiar with that particular market. (Bittker & Lokken 2017, § 135.3).  However, the precise value of the blockage discount is a question of fact best determined by the particular circumstances of the estate.  (Lerner 1993, 624). 

Estate of Smith v. Commissioner

Despite the apparent qualitative differences between stocks and art, the Tax Court first applied the blockage valuation concept to art with the estate of David Smith.  Smith died from injuries suffered in an automobile accident in 1965.  At the time of his death, he had owned 425 pieces of his sculpture, majority of which were located at his home in Bolton Landing, NY.

The estate had valued the pieces individually and then determined that the art, if sold separately, had an aggregate value of $4,284,000.  The estate then discounted the aggregate value by 75% based on the assertion that the final value had to be calculated by using the amount that could be obtained if all the sculptures had been offered for sale at the moment of death.  (Smith, 57 T.C. at 654).  According to the estate, only a buyer acquiring the art in bulk for resale would make such a purchase, seeking to recover the cost over a period of time.  (Id.).  Thus, this hypothetical buyer would have paid only 25% of the aggregate value.  The IRS disagreed with the estate’s valuation and determined a deficiency of estate tax of $2,444,629.17, valuing the works initially at $5,256,918.  (Id. at 655).  The IRS did not accept the blockage discount, finding that the simultaneous availability of all works would not adversely affect the price. 

In its 1972 opinion, the U.S. Tax Court disagreed with the valuations by both the estate and the IRS.  While maintaining that the 75% discount was too large, the Tax Court understood, however, that each work could not be sold in isolation.  The court disagreed with the IRS that the large number of sculptures available on the market would not adversely affect the market price.  According to the court, if the public had known of the great number of pieces immediately available, the estate could “reasonably have expected to get substantially less money for them than if the works were slowly disseminated in the market over a period of years.”  (Id.at 653).  The Tax Court then applied the blockage rule for securities to the estate’s artworks because “at the very least each willing buyer in the retail art market would take into account, in determining the price he would be willing to pay for any given item, the fact that 424 other items were being offered for sale at the same time.”  (Id. at 658).  The Tax Court decided on a blockage discount of 37%, holding that the value of the sculptures at the date of Smith’s death was $2,700,000.  (Id. at 650). 

Cheaper By the Dozen? Blockage & Art

The Tax Court in Smith provided little guidance as to how it arrived at 37% discount but did provide a list of factors to consider when determining the value of a large block of art including: the artist’s reputation at the time of death, the market’s acceptance of the works; the distribution of the works according to size; the period during which they were created; the expression of the quality of the artist’s work; the tendency of the artist in working in series and whether an item was part of a complete series to be valued; sales before and after death; and the location of the works.  (Id. at 658-59).  These factors, while not precisely determinative, do show that the individual characteristics of the particular artwork can have a direct impact on the work’s value.  But the uniqueness of art makes it difficult to apply uniformly a set of standards and to follow precedent – a key principle in any legal analysis. 

Smith’s sculptures presented unique legal and financial challenges for the estate and the IRS, with the limited market for abstract sculpture and the size of his works further reducing the scope of prospective buyers to those who have a lot of space to display and house the works.  Faced with the particular qualities of Smith’s sculptures, the court needed to apply a new approach in order for the market value to remain “fair.”  These pioneering qualities of Smith’s sculptures prompted the court to search for and to apply a different standard of valuation, never before used for this particular type of property, as if inspired by Smith’s own style of combining disparate things together, like paint, metal, or certain shapes.  The blockage rule has since been applied to other artist estates, including the estates of Georgia O’Keeffe (Estate of Georgia O’Keeffe v. Commissioner of Internal Revenue, 63 T.C.M. (CCH) 2699 (1992)) and Andy Warhol (In re Warhol Estate, No. 824/87, (Sur. Ct. NY Co. 1994)).  The boundaries Smith pushed with his welding techniques to create abstract sculpture not only advanced modern art by influencing later movements such as minimalism, but also shaped the law and its valuations of art. 

Art, as seen in the Smith case, can have a significant impact on the outcome of the law.  But, correspondingly, does the law in this context also impact art?  While the blockage rule and the estate tax generally come into play after the act of the creation, the estate tax can impact the subsequent history of the object.  Reducing the amount of estate tax liability that an estate must pay permits the estate more flexibility and freedom in its disposition of the art held by the estate.  When an estate does not need to sell certain pieces to meet its tax liability, the estate may in turn keep a collection intact.  Relatedly, further investigation may provide interesting insight into how estate tax and the ultimate disposition of art held by the artist impacts the creative process.  One would hope and perhaps assume that the artist does not let the estate tax unnecessarily sway the artist’s choices and creativity.  However, artists cannot ignore that their works have a “life” even after the artist’s death. 

The Fine Art of Determining Estate Tax Liability

The blockage rule, first applied to the Smith estate, is now a recognized and established standard for valuing art held by the estate of an artist.  As a seemingly rational and obvious method for determining the fair market value of art, why didn’t the IRS or the courts apply such a rule to art prior to the Smith case in 1972?  The answer potentially lies with an examination of art history.  While the size of the sculpture is not “new,” Smith produced large sculptures at such a high rate and without any specific commission or buyer – resulting in a great estate.  The market for Abstract Expressionist work at that time was very niche as it was evolving into other art movements such as Pop Art.  The combination of a limited number of buyers and a large available volume of work would naturally depress the market price and prevent any “fair” evaluation under the normal standards.  Thus, Smith and his sculptures set a precedent for both law and art.


Anfam, David. n.d. Abstract Expressionism. Accessed March 11, 2018. http://www.oxfordartonline.com/groveart/view/10.1093/gao/9781884446054.001.0001/oao-9781884446054-e-7000000252.

Merkert, Jorn. 1986. David Smith; Sculptures and Drawings. Munich: Prestel-Verlag.

National Gallery of Art. n.d. Circle II. Accessed March 11, 2018. https://www.nga.gov/collection/art-object-page.56389.html#provenance.

Wilkin, Karen. n.d. Smith, David. Accessed March 11, 2018. http://www.oxfordartonline.com/groveart/view/10.1093/gao/9781884446054.001.0001/oao-9781884446054-e-7000079293.

26 U.S.C. § 2001.

26 U.S.C. § 2031.

Treas. Reg. § 20.2031-1(b).

Treas. Reg. § 20.2031-2(e).

Estate of David Smith v. Commissioner of Internal Revenue, 57 T.C. 650 (1972). 

Bittker & Lokken. Fed. Tax’n Income, Est. & Gifts (2017). 

Bogdanski, John A. Blockage, Federal Tax Valuation (2018). 

 Lerner, Ralph E., Valuing Works of Art for Tax Purposes, 28 Real Prop. Prob. & Tr. J. 593 (1993). 

Steinkamp, John G., Fair Market Value, Blockage, and the Valuation of Art, 71 Denv. U.L. Rev. 335 (1994). 




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