What Do You Do With $32 Million You Can’t Deduct?

 

The latest chapter in the “Made for T.V.” saga that is the Herbert Axelrod scandal was his pleading guilty last week to helping a former employee file a fraudulent federal tax return.

As part of that guilty plea Axelrod must file a 2003 tax form but is not allowed to claim a $32 million deduction for his collection of string instruments he sold to the New Jersey Symphony Orchestra.  The $32 million figure is the difference the $49 million Axelrod claims the instruments were worth and the $17 million he sold them for.

That puts a really interesting twist on all of this.  In case you’re just jumping into this story, the authenticity (and therefore value) of instruments Axelrod sold to the orchestra has been questioned by some of the violin industry’s leading appraisers and authenticators, as described in an article in the New Jersey Star-Ledger.

All of this casts a dirty light on the transaction and this latest development may be another blow to the NJSO’s ability to maintain the instruments are worth the $49 million figure claimed by Axelrod.

And then there was one

Who in their right mind wouldn’t want to take a $32 million tax deduction?  The first thought that comes to my mind is someone who knows that deduction probably won’t stand up under examination by the I.R.S.

If that is similar to the position Axelrod is taking then it casts even more shadows on the real value of those instruments he sold to the NJSO.  The only person left in all of this to support the $49 million value is Dietmar Machold, the violin dealer who handled most of Axelrod’s string instrument transactions for the past seven years.

And as the old pop tune goes, “One is the loneliest number that you’ll ever do”.  In the rare string instrument business value is determined (for better or for worse) by consensus among the primary dealers across the world, and the other big name dealers in the business are all taking aim at Machold’s appraisals of the instruments in Axelrod’s collection.

So if Axelrod won’t take a deduction for the instruments based on their alleged $49 million value, what does that make the instruments actually worth?  There’s only one way to find out and it’s up to the NJSO to allow as many of the world’s experienced string instrument appraisers and authenticators examine each of the instruments in detail.

 

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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