Sotheby’s Settles Tax Fraud Lawsuit

Sotheby’s will pay $6.25 million to settle a 2020 tax fraud lawsuit filed by New York State attorney general Letitia James alleging that the auction house, in an effort to boost its own sales, helped wealthy collectors avoid paying sales tax on works collectively worth tens of millions of dollars. “No one should be allowed to cheat the system and escape paying the taxes they owe,” said James in a statement. “Sotheby’s intentionally broke thelawto help its clients dodge millions of dollars in taxes, and now they are going to pay for it.”

According to the original filing, made under the state’s False Claims Act, Sotheby’s between 2010 and 2020 accepted resale certificates from clients with the knowledge that they were false, and that the collectors planned to keep the artworks for themselves. A resale certificate allows the buyer to avoid paying sales tax on an artwork. The suit alleged that the auction house not only accepted fraudulent certificates but suggested buyers use them, assisting them in doing so. In one instance, a junior staffer was said to have helped a wealthy shipping magnate who collects Latin American art avoid paying taxes on $27 million in sales of art and furniture between 2010 and 2015, assisting the buyer in filling out a resale certificate, even though the staffer knew the collector had no plans to resell the work. According to the complaint, at least twenty-nine staff members were aware that the collector did not intend to sell the pieces, and at least twenty-two knew they were bound for apartments he owned in Manhattan.

“These allegations relate to activity from many years ago—in some cases over a decade—and Sotheby’s provided much of the evidence which the AG used to obtain a settlement with the taxpayer referenced in the complaint six years ago,” the auction house said in a statement. “Sotheby’s admitted no wrongdoing in connection with today’s settlement and remains committed to full compliance with all applicable law.”