The Gallerist’s Gambit: Financial Innovation, Tax Law, and the Making of the Contemporary Art Market

This essay focuses on the efforts of an enterprising art gallerist, Leo Castelli, to aggressively promote his stable of Pop artists through the development of several financial structures, including some designed to leverage the relatively generous income tax deductions and anemic enforcement regime of the time. In doing so, Castelli not only seeded the ground for the international ascendance of American visual art, but also engineered financial arrangements that fostered the development of a lucrative and resilient art market that endures to this day. With the aim to provide insights into both the legal-political and the art historical registers, this essay describes a tax law framework that provides a key piece missing from the art historical puzzle.


INTRODUCTION
This essay presents an account of an important moment in the emergence of the market for Pop art that was facilitated in part by a distinctly accommodating legal environment. Although Abstract Expressionism is commonly credited with causing American art's ascendance onto the world stage immediately after World War II, its international acclaim belied a precarious institutional and financial infrastructure for living American painters. It was only with the following generation of Pop and Minimalist artists that the United States developed a self-sustaining market for the work of contemporary American artists. A significant but largely overlooked factor COLUMBIA JOURNAL OF LAW & THE ARTS [42:4 in that continued success was the ability of art dealers to take advantage of the unique legal and regulatory environment of the 1960s. This essay focuses on the efforts of an enterprising art gallerist, Leo Castelli, to aggressively promote his stable of Pop artists through the development of several financial structures, including some designed to leverage the relatively generous income tax deductions and anemic enforcement regime of the time. In doing so, Castelli not only seeded the ground for the international ascendance of American visual art, but also engineered financial arrangements that fostered the development of a lucrative and resilient art market that endures to this day.
With the aim to provide insights into both the legal-political and the art historical registers, this essay describes a tax law framework that provides a key piece missing from the art historical puzzle. While historians have treated the explosion of the market for American contemporary art as a natural consequence of postwar American economic ascendance, 1 insufficient attention has been paid to how this economic energy was channeled into the art market in the first place. Stated differently, Americans were newly flush with cash, but why did they start buying art with it?
To answer this question, Part I of this essay examines how Castelli engineered an array of new financial mechanisms designed to drive up the value of living artists' work through branding, controlling markets, and streamlining supply from his stable of artists. Part II then describes the tax regime during the emergence of American Pop Art, and details how the potential for significant charitable contribution deductions provided an incentive for art purchasers, appraisers, and dealers, including Castelli, to overvalue works of art in order to lower tax liabilities. Part III provides examples of notable transactions detailed in Castelli's archives, and Part IV reviews the lasting impact of Castelli's innovations on the American art market and the enduring law and policy considerations raised by Castelli's business model.
For art historians, a look into the underpinnings of Castelli's gallery reveals a financial imperative for producing multiples, a signature Pop modality. Art historians have typically emphasized how Jasper Johns and Andy Warhol used their art to make a statement about the reigning dogma of Abstract Expressionism. However, their art also provided an opportunity to benefit from the financial advantages generated by Castelli's tactics.
For legal scholars, this case provides a striking example of the opportunities for manipulation that can arise when market conditions underlying tax policy assumptions change rapidly. It also highlights the tensions inherent in a tax regime that relies on providing incentives for wealthy individuals to support institutions that benefit the public at large. Castelli's efforts illustrate the perhaps surprising intersections of law, the creative arts, and institutions that deal in artists' works. To explain how Castelli became positioned to profoundly influence the direction of art production, we first describe the gallerist's rise in the New York art world.

I. CASTELLI MAKES A MARKET
The American attraction to art as an investment has much to do with the efforts of Leo Castelli, arguably the most significant dealer in the history of modern and contemporary art. An Italian-Jewish émigré with an academic background in economic history, Castelli returned from fighting in the United States Army in World War II determined to create a venue through which history's next great artists would establish their reputation. 2 He spent the better part of the 1950s attempting to insert himself-with varying degrees of success-into the orbit of the already entrenched Abstract Expressionists. 3 But he was cognizant that his new gallery would need to launch an artistic movement capable of supplanting these reigning giants. 4 Castelli sensed that he had found the right artists for the task when, in his words, he "stumbled upon [Robert] Rauschenberg [and] [Jasper] Johns." 5 Castelli had known Rauschenberg since 1951, but his encounter with Johns was much more fortuitous. He had been impressed by Johns's Green Target, which he had seen in a 1957 exhibition at the Jewish Museum, and was pleasantly surprised to learn, during a studio visit with Rauschenberg, that Johns maintained a studio in the same building. He interrupted his ongoing visit with Rauschenberg and insisted on seeing Johns's studio firsthand. His level of enthusiasm evidently unabated, Castelli offered Johns an opportunity to join his coalescing stable on the spot. 6

A. CULTIVATING CRITICAL RECEPTION AND DEMAND
Castelli first displayed Johns and Rauschenberg together in the 1957 "New Work" exhibition. Although press reaction to their new object-collage idiom was lukewarm, the show received one review of note. The young academic critic Robert Rosenblum, who had earned his Ph.D. the preceding year from N.Y.U., penned in Arts magazine a short, highly positive review that opened with praise of Johns's Flag . 7 Most significantly, the review introduced into the scholarly lexicon the term "Neo-Dada," which Castelli deftly fed to the ostensibly independent critics and historians writing in response to the works on view in his gallery. In contrast to his largely overlooked group debut, Johns's first solo exhibition "hit the art world like a meteor," 9 and also showcased Castelli's extraordinary ability to manage the commercial enterprise. Castelli engineered Johns's appearance on the cover of Art News and sold all but two of his works to collectors, including David Rockefeller, Alfred Barr, and Burton Tremaine. 10 By this time, it was evident that Castelli had quickly mastered the art of "placing work" in the hands of specific collectors who could do the most to advance the gallery and its artists. 11 Such strategic sales had the effect of increasing Castelli's control over the economic fate of the artists that he represented; no one collector could lose interest and thereby crater the market, and Castelli could create an additional layer of scarcity by refusing to sell certain pieces on the grounds that they were already promised to more established collectors. This manufactured scarcity, which Castelli periodically relieved, created an environment in which patrons were forced to work with Castelli, rather than simply buying art from him. Castelli did not invent this system-similar practices had been in place since the Gilded Age-but he was able to play individual and institutional collectors off one another to an extent unprecedented in the market for the work of living American artists. 12 The patron who did the most to advance Johns's commercial viability was Robert Scull, a New York City taxi magnate and emergent collector of American contemporary art. Scull was unusual in the latter regard; while most important collectors had typically already amassed sizable holdings in Old Masters or Antiquities, the newly wealthy Scull immediately focused his attention on contemporary works. Though Scull did not purchase directly from the blockbuster solo show, gallery records reveal a brisk back and forth between Scull and Castellibuying, selling, and trading close to $40,000 worth of Johns's work between 1959 and 1962. 13 One particularly notable transaction, which included both a sale and a trade, involved Scull acquiring $17,000 worth of Johns's work, the rough equivalent of $150,000 in today's dollars. 14 Through this combination of maneuvers, Castelli

B. SUSTAINING A STABLE OF ARTISTS
Castelli's innovation was not limited to sales and marketing of the end product; he also found ways to provide steady financial support for his artists and thus created a loyal network of artists who were better positioned to follow their creative instincts instead of chasing quicker or larger sales. Indeed, one of the most important shifts in Castelli's gallery operations was to pay exhibiting artists a regular stipend, rather than providing them only a commission from (often irregular) sales. 15 Such regular support had been a consistent feature of European cultural patronage for centuries but was highly unusual in the market-driven United States, and it occasioned profound gratitude from the artists who felt themselves the beneficiaries of unprecedented generosity. 16 The ramifications of the stipend practice were significant, and indeed, the system of regular payments may go some distance in explaining the nature of the break between the circle of Castelli's artists and the prior generation of New York School painters. With few exceptions, these earlier painters had worked on commission, receiving between sixty and seventy percent of a work's sale price. 17 However, gallerists typically maintained only a small circle of wealthy clientele, and the sales generated in this ecosystem were often painfully sporadic. 18 Demand from such patrons was largely inelastic: Collectors pursuing unique prestige objects would the seemingly easy success enjoyed by the subsequent generation, caustically remarked at a party, "You could give that son of a bitch [Castelli] two beer cans and he could sell them." Johns was inspired to turn the concept into a sculpture, and his Painted Bronze (1962)  have been unlikely to buy additional works if the price were to be lowered. Therefore, a financial incentive impelled the earlier New York School artists to maximize each sale by making their work as expensive as possible, with the high price often justified by the size and singularity of the object under consideration. Under Castelli's system, artists knew that they would receive their consistent stipend irrespective of the highs and lows of the market. With a heterogeneous roster of patrons providing a hedge for each individual member, Castelli's artists were comparatively free to make a motley assortment of works, both readily salable and not. The market conditions around the New York School reinscribed its essential aesthetic and ideological characteristics-the emphasis on rugged individuality played out on heroically scaled canvases. In much the same way, the financial infrastructure underlying Castelli's "neo-Dadaists" supported the inherently variegated approach of producing a mix of paintings, sculptures, and object-collages.
This shift from a commissioned to a salaried model might have remained a kind of curious quirk were it not for a confluence of circumstances that magnified its impact on postwar art history. The first, comparatively well-documented factor was the contemporaneous explosion of popular interest in the market for living American artists. Between December 1955 and January 1956, Fortune magazine ran a twopart article detailing the investment possibilities in the international art world, noting that the prices of "the 'hottest' Moderns" had gone up by a factor of ten over the preceding decade and that, for every Impressionist canvas for sale between $50,000 and $100,000, there might be more than "one hundred eager customers waiting." 19 Fortune's "The Great International Art Market" feature was followed by a profusion of popular literature that focused on lowering the barrier of entry for new collectors. The New York Times, Cosmopolitan, and other periodicals featured lifestyle pieces that centered on integrating art collections into livable domestic spaces. 20 The effect of the growth of "amateur" collecting was amplified by a concomitant increase in corporate collecting, then an emergent practice. 21 It was this fevered moment in the mid-1960s art market that led the artist Allan Kaprow to caustically deliver one of his most famous lines: "[I]f artists were in hell in 1946, now they are in business." 22 This acceleration was fully underway in 1957, the year that Castelli officially opened the doors of his gallery. Just two weeks before his premier exhibition, the New York Times declared the existence of "a boom of unparalleled dimensions, 19 steadily building up for several years," that had "come to the art galleries of New York." 23 The Times piece noted two facets of this rising tide which are significant for the present discussion. The first, in keeping with the above-mentioned literature, was what one gallery owner described as "a 'descendency' in caste." 24 The new collecting boom was fueled not by the gentlemanly connoisseurs of a prior generation, but by a new class of buyer-including young professionals and their spouses-with monthly installments available as low as ten dollars for etchings. The second prong noted by the Times was that some of the new buying interest stemmed from "business men with whom tax considerations may weigh as heavily as esthetic gratification." 25 These tax benefits for art purchasers have received much less scholarly attention in the literature on the period, but the potential for creative use and exploitation of tax benefits provided a significant incentive likely touted by Castelli and other gallerists of the time. The next section explores the legal and regulatory environment that provided the tax incentives to purchase art and thus amplified the moves Castelli made on the financial side of his gallery.

II. THE TAX INCENTIVE
In addition to commissioning reviews, placing art in the hands of influential collectors, and providing artists with a steady stream of income, evidence suggests that Castelli and other gallerists of his time employed the elusive and rapidly changing value of their artists' work to create tax benefits for purchasers willing to buy works of art and then donate them to charitable organizations like museums. This section first describes the incentives for wealthy individuals to make such contributions. It then lays out the legal structure that historically left charitable contribution deductions vulnerable to exploitation. Finally, this section explains how such maneuvers run counter to the aims of the favorable tax treatment of charities and their supporters.

A. AN INCENTIVE FOR THE WEALTHY
Despite the increase in accessibility of art collecting in the 1950s, acquisitions of original works of art have necessarily remained largely in the domain of very wealthy individuals and institutions. The affluent individuals who are likely to be purchasers of art are also the most affected by high income tax rates at the top of the marginal brackets. As a result, they have the keenest motivation to reduce their tax liability by all available measures.
The incentive to minimize taxable income was most evident in the mid-twentieth century, when federal income tax rates regularly reached near confiscatory levels on portions of the income of the highest earners. 26 Indeed, top marginal rates reached ninety-four percent during World War II, 27 and remained in excess of ninety percent for two decades thereafter. While the Tax Reform Act of 1964 lowered rates across income brackets, including down to seventy percent for the highest earners, 28 it was not until the Reagan administration that top rates decreased to fifty percent (after the Economic Recovery Tax Act of 1981) and ultimately fell below fourty percent (following the Tax Reform Act of 1986), where they have since remained. 29 Thus, from the 1940s through the 1970s, high earners faced remitting well over half of each additional dollar earned once their income pushed into the highest bracket for the year. They were accordingly highly motivated to reduce their income subject to tax, and the charitable contribution deduction was often a natural fit. Indeed, the charitable contribution deduction has been a perennial favorite of those seeking to lower their earnings subject to tax, 30 and the following section gives a brief overview of that tradition.

B. THE TAX TREATMENT OF CHARITIES AND THEIR SUPPORTERS
Charitable organizations have enjoyed exemption from both federal and state taxes since 1894, meaning that the earnings of the institutions themselves (for example, from admissions charges or fees for services) are typically not subject to taxation. 31 Those supporting charities with contributions of money or property were able to deduct the value of those donations beginning in 1917. 32 Since that time, the 26. Initially, top marginal rates on high earners stood at a modest assessment of no more than seven percent. However, for the vast majority of the following twentieth century, federal income taxes reached more than two-thirds of the income of the highest earners. During the First World War, income taxes became the primary funding mechanism for the national government, and rates climbed swiftly, topping out at seventy-seven percent on the highest incomes in 1918.

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THE GALLERIST'S GAMBIT 487 charitable contribution deduction currently codified in § 170 of the Internal Revenue Code has enabled individuals to lower their taxable income (and thereby reduce their tax liability) by donating money or property to qualified charitable organizations. 33 The federal income tax had only been enacted four years earlier, and Congress intended to "ensure that the income tax would not suppress giving to charity." 34 Under the justification that public charities provide benefits to society as a whole and relieve burdens that might otherwise fall to the government, such organizations traditionally have received indirect support from federal, state, and local governments in various forms. Such support includes exemptions from income and property taxes and-even more significantly-income tax deductions for their contributors. 35 Granting tax benefits to public charities and those who provide their financial support furthers the objectives of the institutions themselves, including providing relief to the poor, but also "furthering public health, [and] supporting the arts . . . ." 36 Art museums ostensibly provide both educational and redistributive benefits to the public, and even to individuals who never visit them, because of the art's availability to scholars and because "these institutions are intermediaries for redistributive gifts-such as the gift of a large private collection of important paintings to the public at large.  Although the educational benefits of contributions to charitable organizations run to the public as a whole, the tax benefits of donations to such organizations are reaped disproportionately by individuals with higher incomes. 38 This disparity occurs not only because the wealthy have more disposable resources or because they have more income to offset, but also because the charitable contribution deduction has been an itemized deduction since 1944. This means it can be used only by taxpayers who do not elect the standard deduction. 39 Indeed, the majority of Americans opt for the standard deduction instead of itemizing and, accordingly, are not able to reduce their tax liability by the amount of their charitable contributions.
Historically, the percentage of itemizers (who can take charitable contribution deductions) has ranged from below twenty percent to over thirty-five percent of taxpayers. 40 However, that number is predicted to decrease dramatically following the 2018 Tax Cuts and Jobs Act, which nearly doubled the standard deduction. 41 The Joint Committee on Taxation estimated that the number of itemizers will drop from forty six and a half million in 2017 to around eighteen million in 2018. 42 That decline means that beginning in 2018, only slightly more than ten percent of taxpayers are projected to claim the charitable contribution deduction. Not surprisingly, itemizers generally have much higher incomes and more complicated tax situations than nonitemizers. 43 Essentially, the structure of the charitable contribution deduction provides only those individuals who itemize with the direct benefit of offsetting the financial impact of donations against tax liability, while the community as a whole experiences the secondary benefits of the charitable contribution deduction. 44 Because those tax also Gergen, supra note 34, at 1398.
38. For example, in 2014, the deduction for charitable gifts was claimed by thirty-seven percent of tax filers with an AGI between $50,000 and $100,000; sixty-eight percent of tax filers with an AGI between $100,000 and $200,000; and more than eighty-six percent of tax filers in each of the income ranges over advantages inure primarily to the benefit of wealthy individuals, the redistributive goals of the tax exemption and deduction regime are arguably undercut. 45 There persists a sharp contrast with the lack of a "private benefit to the poor themselves," who instead partake only of the "collective benefit to society at large." 46

C. THE VALUATION GAME
Unlike cash donations, contributions of property are often difficult to value, which creates a challenge for the IRS and an opportunity for donors. 47 Within the broader category of property donations, works of art present a rather acute test, as consensus on value can elude even experts in the field. 48 This challenge is particularly daunting in the case of contemporary art. For instance, in the 1960s, it would have been considerably easier to establish the value of a painting by a Dutch master like Vermeer, whose works had been known and sold for centuries, than it would be to divine the proper value for a new Warhol painting, which could be said to be worth almost anything.
Not surprisingly, then, properly valuing contributed works of art has for decades been particularly contentious between the IRS and taxpayers. 49 At times, the IRS was ill equipped to challenge appraisals provided by taxpayers to support their claimed deductions. Thus, art dealers like Castelli were well positioned to provide aggressive (if not outright inflated) appraisals that were unlikely to be successfully challenged. Such high appraisals allowed Castelli and others to promote their artists' work as a vehicle to offset the taxable income of clients willing to donate the purchased art to a museum or other public charity. For tax year 2011, for example, 21.7% of the amount of charitable contributions were by individuals earning $1 million or more of adjusted gross income, representing just .747% of total returns. In addition, a high percentage of gifts are not in cash. In 2011, for example, about 24% of charitable contributions were of noncash property. Of these contributions, 41% were made by individuals earning $1 million or more of adjusted gross income [.] Dale & Colinvaux, supra, at 359. 46. Gergen, supra note 34, at 1397-99; Fleischer, supra note 31, at 512-13 (noting "in other cases, no benefit for the poor is required (for example, education, the arts, and many health services)" for an organization to qualify for tax exemption as a charitable organization).

The Allure of Overvaluation
In the context of art, there is an inherent conflict between the subjective analysis of valuing unique works and the IRS's need for objective justification for allowed deductions. 51 The tax deduction for donors who contribute property to charitable organizations is typically the property's fair market value at contribution rather than the cost basis-or original purchase price-of the donor. 52 In determining that fair market value, works of art present a distinct challenge because traditional valuation methods, such as relying on recent comparable sales, are often not available or not truly analogous. 53 Further, in contrast to arms-length transactions where the parties are bargaining with each other for finite gains, there is no incentive for charitable institutions to dispute claimed valuations by donors. Indeed, nonprofit organizations that rely primarily on contributions to support their operations have ample motivation to keep their donors happy. Consequently, there is a unique potential for abuse through the manipulation of appraisals used to value donated artworks for tax purposes. 54 As such, charitable donations of property like artwork became a popular mechanism for lowering taxable income through deductions. 55 Unsurprisingly, wealthy taxpayers in the seventy percent to ninety-one percent tax bracket during the 1950s and 1960s stood to benefit the most from the structured donation of artwork. 56 In time, high income individuals began acquiring art with the intent to then donate it to a museum or other charitable organization. 57 In 55. See Speiller, supra note 49, at 215 ("The favored tax treatment referred to stems from two unique characteristics of art objects. First, it is extremely difficult to value an art object for tax purposes. This permits the purchaser to overvalue items donated to charity (thereby receiving excessive income tax deductions), and to undervalue gifts to family members (thereby avoiding transfer taxes). Second, it can be difficult to determine why an art object was acquired. The status of the purchaser for tax purposes depends on whether the object was acquired for personal enjoyment, as an investment, as business inventory, or for display in a trade or business. Since such status is not easily determined, the purchaser can claim a status that assures him the most favorable tax treatment.") (citations omitted); see also

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1969, it was possible to profit handsomely by giving rather than selling appreciated property, if the donor was in a high tax bracket and if the sale would produce ordinary income." 58 Taking as an example a simplified version of a scenario described in Professor Speiller's article, it is easy to see how, if a generous appraisal could be obtained, it was even more beneficial to donate than to sell works of art: The year is 1960. X is a married taxpayer who will file a joint return and will have an impressive $120,000 of taxable income for the year. 59 X owns a painting worth $10,000 for which X paid $5,000 three years ago, and X is considering either selling the painting or donating it to a museum for a tax deduction. 60 If X sells the painting for $10,000, the sale would generate $5,000 of capital gains and $1,250 of capital gains tax (at the then-current 25 percent rate). 61 In this scenario, X would net $3,750 by way of sale. 62 If instead X donates the painting to a tax-exempt charitable entity such as a museum, the contribution would generate a charitable deduction of $10,000. That $10,000 deduction would reduce X's taxable income from $120,000 to $110,000. X's marginal tax rate for that eliminated income would have been 75 percent, so X would save approximately $7,500 in federal income tax. 63 In this scenario, X would net $2,500 by way of donation. 64 So X has a benefit from the deduction, but would not be better off than if the painting were sold. Now, suppose X is less scrupulous and was able to obtain an appraisal of $20,000 for the painting. If the museum accepts the donation and the valuation, X would double the deduction from $10,000 to $20,000, and thus reduce X's taxable income from $120,000 COLUMBIA JOURNAL OF  As these scenarios demonstrate, overvaluation could provide an art donor with an "undeserved tax reduction," even if the donation resulted in a personal loss. 68 Indeed, with overvaluation, individuals in a wide range of income levels could benefit from donating rather than selling artwork. Profitable giving was not reserved to taxpayers in the very highest brackets, to cases in which the property had only a nominal basis, or to cases where overvaluation was extreme. 69 Clearly, valuation and supporting appraisals were critical to maximizing the financial and tax benefits of purchasing art. Moreover, the possibility of taxincentivized giving to a museum not only made an investment in art more liquideasier to convert to back to cash-but it also made it more secure and provided a hedge against depreciation. 70 For most kinds of assets, a decline in price would leave a buyer stuck with a loss. However, through the 1960s, little prevented a collector from donating a depreciating piece to a museum and claiming a deduction sufficient to make the collector whole. In this way, the tax regime of the early and mid-1960s provided both a potential for a significant discount on tax liabilities as well as an investment backstop to collectors of contemporary American art.

Attempts to Ensure Independent Valuation
Historically, the IRS had limited success assessing deficiencies in cases where proper valuation was elusive. 71 Indeed, the IRS was largely at a disadvantage in these cases, as the taxpayers often had well supported appraisals from expert dealers and were equipped to contradict the witnesses proffered by the IRS. 72 This was especially so because museums frequently provided appraisals directly, offering this as a service to both appease donors and trustees and facilitate the donations of (highly valued) works to their own collections. 73 Cost, auction prices, intrinsic value, 65. This figure comes from multiplying the $20,000 by the seventy-five percent marginal tax rate. 66. Take the amount of the tax benefit of $15,000 and subtract the original purchase price of $5,000 in order to reach the net of $10,000. 67. Speiller, supra note 49, at 220-21. 68. Id. at 221 (citations omitted). Once a sales commission (roughly twenty percent) is included in these calculations, the profit is even greater. 69. Id. at 220-23 (illustrations omitted) (citations omitted). "In the case of property with a nominal basis, a 70% bracket taxpayer profits even without overvaluing his gift, and a 50% bracket taxpayer need only overvalue his gift by more than 28% in order to profit. Similarly, in the case of property whose basis is 50% of its fair market value, the 70% bracket taxpayer still profits by making a gift overvalued by only 3%, and the 50% bracket taxpayer profits if he overvalues his gift by more than 48%." Id.
70  1950s and 1960s, the IRS was unable to adequately audit the large volume of tax returns claiming charitable deductions for donations of works of art. This was largely because the agency lacked the internal expertise needed to scrutinize valuations of such unique items. 75 In 1963, the Treasury proposed regulations aimed at reducing abuses of charitable deductions by strengthening the requirements for substantiating the value of charitable contributions. 76 The purpose of this change was to curb deduction abuses by requiring more independence, and more documentation, from appraisers valuing donated property. 77 During the "notice and comment" period of regulatory review, a window in which industry groups most likely to be affected by the proposed change were invited to provide feedback to the regulatory agency, the details of the changes were circulated among the members of the Art Dealers Association ("ADA"). The ADA, an organization for commercial galleries mostly based in New York City (of which appraisals for donors' tax purposes and indeed museums were under pressure to make their staff available for such purposes." DeAngelis & Hersh, supra note 49, at 151-52. "Due to perceived abuses with valuation of charitable deductions, Congress in the Tax Reform Act of 1984 . . . disqualified donee organizations (such as museums) . . . from providing appraisals for a donor's tax deduction for any object or group of similar objects over $5,000 in value." Id. Castelli was a founding member), found "nothing in the proposed regulations that would be objectionable to our members or to their collector-customers." 78 In fact, the change turned out to be an enormous boon for the ADA, which seems to have largely attempted to comply with the requirement that multiple, independent opinions be solicited to value the worth of a donated object. The ADA began to charge fees for its appraisal services, and between the years of 1962 and 1964, the revenue collected from the fees more than quadrupled, accounting for seventy percent of the organization's operating budget. 79 But it proved to be enormously difficult to ensure "independence" in a realm as insular and opaque as the elite contemporary art world. 80 In response to rampant appraisal abuse, the IRS created the Art Advisory Panel in 1968. That panel today consists of up to twenty-five art experts who meet twice a year in Washington, D.C., and assist the IRS in reviewing art appraisals and making recommendations to the Art Appraisal Services unit of the IRS Office of Appeals. 81 Any appraisal submitted to the IRS claiming a value of $20,000 or more for a single work of art will be referred to the panel for review. 82 The panel regularly suggests adjustments to a large percentage of the appraisals it reviews, resulting in tens of millions of dollars in recovered tax revenue annually. 83 The IRS also now allows taxpayers claiming charitable contributions over $50,000 to seek a Statement of Value, backed by a qualified appraisal, an appraisal summary, and a fee of $2,500, which must be filed before the tax return reporting the charitable contribution. 84 Despite these measures, overvaluations are still "difficult to identify, substantiate and litigate," and the same charitable institutions that benefit from the contributions lack any incentive to participate in correcting valuations. 85 Congress has since made a number of reform efforts, though none have proven to eliminate the loopholes so readily exploited. 86 To the extent that further reform is implemented, it will need to address these vulnerabilities in the system in addition to "administrability, from the point of view of both the government and the taxpayer, [and consider] the potential for gaming of the system, cheating, and the burdens of compliance." 87

III. EVIDENCE FROM CASTELLI'S ARCHIVES
Records of the Leo Castelli Gallery, housed at the Smithsonian's Archives of American Art, provide a detailed account of the gallerist's operations and methods. Castelli's correspondence and other files reveal a devoted individual motivated primarily by a genuine drive to achieve the best possible results for his artists. But the records also show Castelli to be a shrewd businessman whose appraisal practices and dealings at times strayed beyond ethical standards and the law. The Castelli gallery files are replete with apparent conflicts of interest, and even instances of likely deliberate inflation.
To choose one purposefully above-board example, in 1963, the collector Burton Tremaine wrote to the Art Dealers Association ("ADA") to ask for an independent appraisal of a large Jackson Pollock painting that he owned. 88 The ADA appointed Castelli to the panel that would offer the appraisal. Castelli, as a former secondary dealer of Pollock's who was uninvolved with the Tremaine sale, was as close to an ideal candidate as the ADA was likely to find. Castelli promptly responded to the secretary's request with a reasonable valuation, $60,000, justifying his figure by reference to a similar work that had recently sold at auction in London. (Most of Castelli's subsequent appraisals lack such evidence-based justification.) Shortly thereafter, the work was purchased by-not donated to-the Museum of Fine Arts, Houston. 89 The difficulty here lies in the fact that Tremaine was one of Castelli's most enthusiastic clients, actively involved in acquisitions of works by both Johns and Rauschenberg. Thus, while the appraisal figure was likely sound in this particular case, Castelli had a financial incentive to increase the appraisal value of the Pollock in order to generate greater potential sales for himself and his gallery.
At the more opportunistic end of his dealings are Castelli's interactions with art collector Robert Scull, which demonstrate the jaw-dropping potential for economic gain when a gallerist and dealer work in tandem. Scull became interested in Jasper Johns when he encountered his work at the Rive Droite gallery in Paris in the spring of 1960. In the immediate wake of Scull's purchase of Grey Alphabets (1956), gallery records indicate that a rapid and frequent trade between Castelli and Scull took off, with the latter buying, selling, and trading more than a dozen Johns canvases in the 86 next several years. 90 Then, in the summer of 1962, a highly unusual event took place.
In addition to his role as a customer, Scull became a financial backer of the gallery, lending Castelli the considerable sum of $20,000. Against this loan, Castelli provided two Johns and one Rauschenberg work as collateral. 91 In June of 1963mere months after the ADA became aware of the proposed Treasury regulations that would require substantiated valuations-gallery records show a single, bidirectional transaction between Castelli and Scull for a total of $35,000: a $20,000 loan repayment and a $15,000 purchase of Johns's Map (1961). Johns's Map is a particularly significant example because it is one of the few of these sorts of transactions about which Castelli has spoken publicly. According to Castelli's recollections, the piece had actually occasioned a bidding war between Scull and Tremaine, with questions about right of first selection and highest price catalyzing a back and forth between the collectors. 92 Per Castelli, the impasse was resolved only by Johns's insistence that the piece ultimately be donated to a museum. 93 Scull ultimately won the day, agreeing to donate it to the Museum of Modern Art in New York City. Donation appraisals through the ADA were of course required, and it is worth quoting Castelli at length about what happened next: As a matter of fact, the Art Dealers Association, which does this evaluation as you know, asked me to give them a value, and they had asked also Ivan [Karp, Castelli's gallery manager]. So Ivan phoned me and said what do you think we should value it at? So, I said, "Well, I think that it should be $150,000." Ivan said, "Yes. I feel that, too." And that's what we said. Then, this was discussed at the meeting of the Board of Directors of the Art Dealers Association (of which I'm a member, by the way) and they said don't you think it's a little bit high under the circumstances . . . . So they did not feel safe about this estimate. Let's consult some independent sources, maybe the German dealers who handle him and perhaps a Swiss dealer, who has a real sense of value, is well informed. So, we did that, and we got replies back. One said 120 and another said 140. So, we decided to have it registered at 130. 94 Several aspects of this passage are remarkable. Most importantly, the final appraisal figure is wildly out of proportion with anything actually commanded by Johns on the commercial market. According to gallery files, Johns's large paintings were typically priced in the $10,000 range, making the original sale price of $15,000 on the generous side of reasonable for the early 1960s. 95 Castelli's attempt to inflate this figure tenfold within weeks after its sale was a rather brazen move designed to benefit Scull, who at that point was both Castelli's client and recent financier. As

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Castelli was pleased to tell his interviewer, "you can see what a nice deduction he got there." 96 Though the exact amount by which this donation offset Scull's tax burden remains inaccessible without personal tax returns, it very likely was an extraordinary tax windfall. The gross exaggeration necessary to claim a $150,000 valuation for a $15,000 painting points to the importance, but also the difficulty, in attaining a truly independent appraisal. In the case of Johns, a young, ascendant talent under the almost monopolistic control of a single dealer, the ostensible independence of the European dealers referenced in the exchange is hard to countenance. Castelli purposefully allowed satellite exhibitions of his artists, especially in overseas venues through which they could acquire European prestige; however, all of these foreign projects would have been organized directly through the Castelli Gallery. In the discussion, Castelli is probably alluding to Rudolph Zwirner, a Cologne-based Pop art dealer with whom Castelli shared the business of German megacollector Peter Ludwig. As Zwirner depended on Castelli for his relationship with Johns and other American Pop artists, he could not have been "disinterested" in the sense intended by the ADA. This inherent imbrication of financial motives is indeed attested to by Castelli, whose first-person plural "we decided" on the final appraisal value tips his hand to direct involvement.
While the Map transaction comprises a particularly blatant and singularly welldocumented example, evidence for these kinds of irregularities recurs throughout Castelli's gallery records. 97 Given the opacity that characterizes the buying and selling of contemporary art, such transactions likely only skim the surface of the ways in which Castelli put the particularities of the financial landscape to work for his artists, his collectors, and himself. Indeed, in an unpublished interview Castelli granted in 1970, he credits these kinds of maneuvers for differentiating his gallery and its program from the growing competition. Other galleries, Castelli explained, "did not succeed in solving the financial problem, while I, well, had perhaps more imagination in that area than they." 98 And one need only consider the breadth and depth of Castelli's stable-which, by the end of the decade, would include Johns, Rauschenberg, Warhol, Frank Stella, Robert Morris, Bruce Nauman, and Richard Serra-to grasp the impact of Castelli's "imagination": a system in which museum donation established both a source of liquidity and insurance against depreciation. In this easier-to-win, harder-to-lose scenario, it is not difficult to see why the smart money would have been betting on Castelli. COLUMBIA JOURNAL OF LAW & THE ARTS [42:4

A. CASTELLI'S LASTING INFLUENCE ON THE BUSINESS OF ART
The overarching shape of the work produced by Castelli's stable of artists must be understood as a response to a set of legal and financial, as well as art historical, imperatives. This is not to suggest that any specific set of choices made by Johns or Rauschenberg should be thought of as reducible to market forces. Rather, the landscape created by Castelli impacted several interrelated components of the art world: the consumers/clients, the development of the artists within Castelli's stable, and the financial advantages available to all participants in the art market at the time.
First, the economic momentum of the postwar moment generated an ideal set of opportunities for the makers of formerly elite objects to reach new consumers. For example, while a limited number of elite patrons-and relevant, contemporaryfocused museum collections-could absorb the production of large, expensive paintings and object-sculptures, a wider base of collectors could be enticed by moreaffordable editioned prints. Indeed, Castelli's circle made unprecedented use of multiples, first produced by Universal Limited Art Editions and then, beginning in 1969, by an in-house graphics studio run by the dealer's second wife, Toiny. 99 This broadening of the collecting class not only reflected new patrons driving the expansion of the gallery circuit, but also demonstrated broader social trends. As business writer Karen Raugust has noted, the post-World War II economy generated a situation in which "money descended on whole new classes of consumers faster than they could cultivate the good taste" required to make sophisticated choices. 100 Indeed, this new good taste was often communicated and cultivated through the medium of advertising, which frequently drew upon the history of avant-garde visual art to communicate a message of urbanity and up-to-date sophistication. 101 In this appropriation, by which the visual arts were used to both inculcate and demarcate the bounds of refinement, Raugust sees a microcosm of the larger history of consumer capitalism, which moves forward by bringing the status symbols and luxury items of the formerly elite aristocracy into wider circulation for the upper and middle classes. One might even argue that Castelli's gallery took these developments through an additional, reflexive step: making the means of circulation and exchange into both the context around and the contents within Pop. 102 Second, and relatedly, a major achievement of Castelli lies in the manner in which he was able to take a new spate of artistic directions-things that would be called "neo-Dada," "Pop," "Minimalism," and eventually, "Process art" and "video art"and position them as heirs to the reigning orthodoxy of New York School painting. This positioning was multi-pronged and self-reinforcing. Flattering comparisons to European art and commissioned academic essays granted the work under consideration an aura of respectability, while Castelli's farsighted approach to matters ranging from artist stipends, museum acquisitions, and collector placement, not to mention aggressive use of tax law, created an academic and financial footing for the artists in his stable.
Finally, the success of this model is legible in the now canonical status of the artists who comprised his early rosters, the network of galleries that sprang up around Castelli, and the financial benefits achieved for all parties. Most importantly, the repercussions of Castelli's new business model can be seen in the dizzying scope of the contemporary art resale market, which also traces its origins back to the interactions between Castelli and Scull. Almost exactly ten years to the day after the Map sale, Scull decided to put fifty works from his growing collection up for auction. 103 The resulting "Scull Sale," as it has come to be known, shattered many longstanding records. The most dramatic moment of the night came from a momentarily contentious exchange between Scull and Rauschenberg, after the latter's Thaw (1958) sold for $85,000, almost a ninety-fold increase. But the banner sale of the night-and the highest price ever paid for a living American artist-went to Jasper Johns's Double White Map, which sold for the eye-popping price of $240,000. 104 As Noah Horowitz has recently observed, "in the aftermath of the Scull sale, a more financially shrewd era in the art market seemingly emerged." 105 Dealers, artists, and collectors became more status-and investment-conscious, both the scale and ambition of works grew ever larger, and prices were set more aggressively. While scholars, including Horowitz, concede that the impact of the sale has occurred primarily at the level of lore-as the origin point for the contemporary state of the market-the sale has nevertheless cemented itself into the collective financial imaginary of the art world. 106

B. ENDURING LESSONS FOR TAX LAW AND POLICY
The transactions documented in Castelli's archives and Castelli's description of his own cavalier and collusive methods of generating generous art appraisals provide a stark example of the importance of truly independent scrutiny of financial arrangements that have significant tax implications. Although the IRS, in the decades since the notable abuses of 1960s, has developed a bevy of mechanisms to detect and discourage inflated appraisals of donated property, its enforcement abilities have diminished in recent years as it has faced repeated deep budget cuts. 107  Even with today's historically low federal income tax rates, which make the need to avoid taxable income less acute, individuals with significant incomes still have ample incentive to generate tax deductions. For those who itemize, each additional dollar's worth of property contributed to a qualified charity generates some (although less than a dollar of) tax benefit. Accordingly, even in its diminished capacity, the IRS must continue to devote considerable enforcement resources to guard against an erosion of the tax base through aggressive appraisals of donated property. More broadly, the tax-advantaged maneuvers of Castelli and his colleagues reinforce concerns that purportedly public charities are the personal playthings of the affluent. Castelli's archives provide a small window into the historically privileged and interconnected world of art collectors and dealers. With a few phone calls and supporting slips of paper, that group had the ability to shift tens of thousands of dollars from the tax coffers to individuals who were willing to donate art to museums and other public institutions. While the public undoubtedly benefits directly and indirectly from access to art, those benefits come at a very real cost to tax revenues. Because only those who itemize their deductions can offset their taxes with charitable contributions, the direct financial benefit of such donations is limited to a relatively small group of typically high-income taxpayers. Beginning this year, that disparity is likely to be exacerbated by a dramatically augmented standard deduction, which will reduce the number of itemizers (and thus those who benefit from the charitable contribution deduction) to perhaps one in ten taxpayers. A charitable contribution deduction with extremely limited availability, overseen by a severely underfunded enforcement agency, threatens to undercut the altruistic objectives underlying the favored tax treatment of charities and their supporters.

V. CONCLUSION
Although conventional thinking attributes the explosion of the American contemporary art market to the vast economic expansion after World War II, Leo Castelli's pioneering promotional schemes and financial arrangements were integral to the success of his artists and the development of a self-sustaining American art market. Castelli shaped the manner in which art dealers, collectors, and artists collaborated, and leveraged the legal and regulatory environment of the time to his and his clients' advantage. Indeed, the relatively underdeveloped enforcement regime of the 1950s and 1960s provided an opportunity for savvy dealers and market makers like Castelli to influence the aesthetic of, demand for, and ability to acquire American artwork. Castelli's legacy lies not only in his influence on the business dealings of artists and gallerists, but also in the cautionary tale his cunning maneuvers leave for regulators and lawmakers.