Main Menu

E-mail This Page To A Friend

A Violin's Value, and What to Pay the I.R.S. Fiddler
New York Times
May 2, 2004

By RICHARD LEZIN JONES

This article was reported by Richard Lezin Jones, David Cay Johnston and Allan Kozinn and written by Mr. Jones.

From the start, the leaders of the New Jersey Symphony Orchestra thought there was something strange about an offer made by Herbert R. Axelrod, a pet-care book publisher from the Jersey Shore, to sell the orchestra his $50 million collection of rare stringed instruments at half price.

"I thought he was nuts," said Dr. Victor Parsonnet, a cardiac surgeon who is the chairman of the symphony's board.

But there was something in the deal for everyone. For a financially struggling orchestra, the 30 rare instruments from the 17th and 18th centuries - including a dozen Stradivari violins, three made by Guarneri del Gesy, and an Amati viola - offered a potential drawing card for both musicians and audiences. For Mr. Axelrod, there was the promise of cash and a big tax deduction on the difference between the final purchase price, reduced to $18 million, and the collection's appraised value.

The symphony bought Mr. Axelrod's instruments in February 2003, and now that transaction is being viewed in a fresh light after Mr. Axelrod fled to Cuba two weeks ago, on the eve of his indictment on federal tax fraud charges related to the sale of his publishing company.

Senate investigators are questioning whether the instrument sale is representative of a fast-growing tax dodge in which wealthy donors inflate the value of gifts - from rare violins to paintings, period furnishings and even fossils - abetted by docile appraisers, weak tax enforcement and cultural institutions with little interest in making waves.

Senator Charles E. Grassley, the Iowa Republican who is chairman of the Senate Finance Committee, demanded in a letter last week to the Smithsonian Institution that it justify the $50 million value placed on a gift of four Stradivaris from Mr. Axelrod in the late 1990's. The Smithsonian has drawn the interest of the committee, partly because of its charter as a government agency.

"We're seeing problems of wildly inflated in-kind donations across the board: cars, land, intellectual property and now, possibly, donations of musical instruments," Senator Grassley said in an e-mail message.

By law, institutions that accept such gifts have no duty to inquire into either their value or into the tax deductions taken by donors, and the art world has fought past proposals to hold it accountable for facilitating tax fraud through donations. Senator Grassley's Smithsonian letter makes reference to a 1983 incident in which the Internal Revenue Service challenged the value of gems that were donated to the Smithsonian and appraised at five times their purchase price.

Smithsonian officials said they had fully complied with the law regarding the Stradivari donation. Representatives of the New Jersey Symphony Orchestra said that they had never endorsed Mr. Axelrod's $50 million appraisal of the instruments and that the orchestra did not even give him a receipt.

Michael B. Himmel, an attorney for Mr. Axelrod, said he could produce experts to support the $50 million valuations Mr. Axelrod claimed for the instruments given to the Smithsonian and for those sold to the New Jersey Symphony.

Mr. Axelrod did not return calls seeking comment. In an article last week, The Star-Ledger of Newark quoted Mr. Axelrod, interviewed in Havana, as saying, "I am not a criminal. I don't feel like one."

The I.R.S. has no uniform standard for appraising the value of works of art or other collectibles, making those valuations a time-honored way to cheat on taxes with little risk of detection.

Sometimes the agency is alerted to questionable valuations by whistle-blowers.

Neil K. Fitzgerald, an investment banker with 30 years' experience evaluating art objects and antiques, said he came to doubt the value assigned to Mr. Axelrod's Smithsonian gift while reviewing a business deal proposed by the expert who had appraised the violins. The suspicions, he said, prompted him to seek a reward from the I.R.S. for flagging fraud in both the Smithsonian and New Jersey Symphony transactions.

Experts are divided on whether the New Jersey Symphony paid too steep a price for Mr. Axelrod's instruments, but they generally reject Mr. Axelrod's $50 million appraisal out of hand. Dr. Parsonnet has said that he thinks the $18 million purchase price was fair, noting that the orchestra hired several independent appraisers to assure it was getting a good value.

"Every time I listen to those instruments," he said, "I say to myself, `That was worth it.' "

Perhaps the only thing that is widely agreed on is that prices for things like 17th- and 18th-century violins rarely, if ever, go down. In both collecting and philanthropy, neither institutions nor appraisers - who are often paid a commission based on a percentage of an item's value - have much incentive to disprove valuations that others may claim are excessive.

"This is an interesting business if you like crooked stories," said Fritz Reuter, a Chicago dealer and luthier - a maker of stringed instruments - who maintains a skeptical chronicle of the violin market on the Web at www.fritz-reuter.com

"It's a business in which a lot of people are paid to sell a Strad," he said. "You have the dealer, appraisers, experts and consultants, all of whom take a fee. They promote each other to a degree. They stand in a circle, and with one hand they're patting each other on the back, and in the other hand they have a stiletto."

One consequence of the inexorable upward value spiral is that rare instruments are sometimes priced out of the hands of the musicians who could make best use of them. That was one of the reasons the New Jersey orchestra was so anxious to secure Mr. Axelrod's collection for its performers, who long have played in relative anonymity, eclipsed at either end of the New Jersey Turnpike by the New York Philharmonic and the Philadelphia Orchestra.

"They never dreamt they would be playing these instruments," Dr. Parsonnet said of the orchestra's musicians. "They hold them like they would hold their baby."

Worried about lost tax revenue, Senator Grassley plans to conduct hearings on regulating charitable donations in the next few months. Last week he introduced legislation that would make it easier for people who tip off the I.R.S. to suspected tax fraud to collect rewards.

In doing so, he drew on the experience that Mr. Fitzgerald, the investment banker, had dealing with the I.R.S. Mr. Fitzgerald said he gave I.R.S. criminal investigators a list of appraisers whose integrity he considered beyond reproach and who had no financial interest in Mr. Axelrod's deals.

"The I.R.S. never contacted one of them," he said.

Recently, he said, the I.R.S. told him that it could not find any record of his application for a reward, which under the tax code could amount to more than $2.5 million - a figure derived from a percentage of the combined $20 million that Mr. Fitzgerald believes the government has lost to fraud in the Smithsonian and New Jersey orchestra deals.

I.R.S. officials declined to comment.

Only about one in 11 reward claims is paid by the I.R.S., and Senate investigators contend that the low ratio is a key reason that many people who know about instances of criminal tax evasion do not report them.

Edward H. Able Jr., executive director of the American Association of Museums, said that he did not believe overvaluation of donated art objects was a big problem. But he added that there was near unanimity among museums that they should not be burdened with any duty to report donors, even if they suspected that donors were cheating by claiming inflated tax deductions.

"If Congress really wants to crack down and make sure that this is being honestly dealt with by taxpayers who make donations of objects," Mr. Able said, "then it should provide the I.R.S. with sufficient resources to police these gifts."

Federal law already requires charities that accept gifts of closely held stock - like shares in a private business - to report the shares' value if they are sold within two years. The intent of that requirement, known among executives of charity organizations as the rat-out rule, is to reduce the chances of donors taking an exaggerated deduction.

Experts who deal in rare art objects say that disputes over the value of donated items might be resolved by putting a uniform set of appraisal standards in place. Edwin W. Baker, executive vice president of the American Society of Appraisers, said that his group has repeatedly tried to persuade the I.R.S. and the Treasury Department to adopt such standards.

"When we try to explain that they need to put some resources into this, they look the other direction," Mr. Baker said.

In the case of violins and the like, another sort of solution is to put less of a premium on the relatively tiny cache of famous makers.

Although the great 17th- and 18th-century stringed instruments retain their cachet with soloists who can afford them or who can find a patron or institution willing to lend them one, there is a degree to which the rising cost of the instruments - and of insurance for them - is leading players to consider newly made ones.

Many are finding, to their surprise, that modern instruments can be as good as, or even superior to, their famous, expensive predecessors.

Christian Tetzlaff, 38, a German violinist regarded as one of the best of the younger generation of players, performed on a 1713 Stradivari violin early in his career. But by the mid-1990's, he was also using a new model by a German maker, Peter Greiner. Now he is on his third Greiner violin, an instrument built in 2001, and he has given up his Strad entirely.

"It's in such good shape that from Bach to Ligeti, I can play everything on it," Mr. Tetzlaff said of his Greiner, praising its sound, feel and, particularly, its projection and physical durability. "And I can play very loud and very soft. With the Strad, I just couldn't give as much, especially in the upper range."

Mr. Tetzlaff said he is amazed by how frequently he is asked, when rehearsing with an orchestra, if his violin is a Strad or a Guarneri. "And then to explain, `Well, this is a new fiddle,' and to see their astonishment, makes me wonder why people assume you cannot build a fiddle now.

"On the other hand," he added, "people don't know how many bad-sounding Stradivaris are out there, how many I've tried that just don't work."

The New Jersey Mafia - The REAL Sopranos!
The New Jersey Mafia

eMachine Power Supplies are a TIME BOMB!
Don't Trust External Hard Drives!
Reset Windows XP - Vista Password
Reinstalling Windows XP Password
Computer Noise

Internet War waged against Hal Turner, New Jersey hate monger

Menendez's campaign was like a tiger or a lion, supple and strong in action and reaction.
The Kean response resembled a skinny alley cat rummaging through a garbage can.

City Hall Web Wall

From a short story at UBERHIPPY

“Next was the poundin’ and thumpin’ of the goon squad runnin’ upa coupla’ flights of metal stairs -- sorta like jungle drums in some old timey movie.”

Now on Sale at Amazon

Hudson County Facts Winter 2006 by Anthony Olszewski
Hudson County, New Jersey is a place of many firsts - including genocide and slavery.
Political corruption is a tradition here.
First in a series by Anthony Olszewski – Click HERE to find out more.

Print Edition Now on Sale at Amazon

Read Online at
Google Book Search

Advertiser and Distributor
Inquiries Welcome

Intellectual Predator
Shines the Light of Reason on New Jersey Politics

Police question website operator over posting of incident reports

Hudson County Facts
Hudson County Politics

The Jersey City of
Bret Schundler

Jim McGreevey vs. Bret Schundler
The 2001 Race for Governor of New Jersey

Due to the tireless efforts of Brooklyn District Attorney Charles "Joe" Hynes,
the people of New York City remain safe from that gang of marauding political reprobates – Sandra Roper, John O'Hara, and Judge John Phillips.

United States Of America V. Robert Philip Hanssen
The FBI Agent Who Spied for the Russians

Asbury Park
Bruce Springsteen's Jersey Shore Rock Haven!
Jersey City History
Your Ancestors' Story

UrbanTimes
297 Griffith St.
Jersey City, NJ 07307
anthony.olszewski@gmail.com