Feb 1, 2005 12:00 PM

, By Manuel E. González, head of art advisory services, New York, and Michael L. Duffy, wealth ad

By Manuel E. González, head of art advisory services, New York, and Michael L. Duffy, wealth ad

Boris Leavitt amassed a fortune in the mail order business and left a contemporary art collection that was appraised at $12.4 million when he died in June 1996. One work alone, Willem de Kooning's “Woman,” was worth $9 million. At auction five months later, the collection fetched a total of $20 million — with “Woman” selling for $15 million.

Soon after, the Internal Revenue Service's Art Advisory Panel found that Leavitt's estate had undervalued his art collection by $7.6 million and owed another $3.8 million in taxes. The estate protested, arguing that its valuation was correct at the time of Leavitt's death; there had simply been a sharp, unanticipated jump in contemporary art prices in the ensuing months. The panel was unswayed. After a protracted legal battle, the two sides settled in August 2002, with the estate agreeing to pay an additional $1.1 million in taxes plus interest.