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Barter Economics Still Lives in the Art Trade

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In order to succeed in their profession, art dealers need to be patient and accommodating. Works of art can be quite expensive, and few of the wealthy collectors who purchase pieces are likely to have $200,000 or so sitting in the bank on which they can write a check. More often the case, these collectors must sell stock or other assets, or wait for an inheritance or a certificate of deposit to come due before they can make a substantial purchase, and the process of raising money may take time.

Waiting for money to arrive may bog down a sale, and dealers sometimes take a tangible asset in whole or partial exchange for a desired work of art. "I've traded for houses a couple of times, maybe three times," said Santa Fe, New Mexico art dealer Gerald Peters. "I've taken stock in trade a few times, too." Paul Gray, director of the Richard Gray Gallery in Chicago, has accepted a case of wine ("it was very good wine") as partial payment for a painting, and he did the same with a watch although, when he took a new Toyota in exchange for a contemporary painting ("my sister needed the car") from a car dealer, "I think I may have paid him some cash."

Many art dealers have the experience of being offered some object in trade, the most common being another work of art, although other items may be suggested as well. The late New York art dealer Andre Emmerich once noted that "when the gold boom was going on, someone once paid me in gold coins." Everything is OK as long as both parties agree.

The aim, according to Gray, is to "help make the transaction as painless as possible; it's part of maintaining the friendly relationship between the collector and dealer." In addition, he added, exchanges of property offer a "psychological benefit" to the collector who will "trade something they don't think is as valuable as what they're getting, although it usually is. I'm not in this business to lose money."

While speeding up the sale of artwork, noncash exchanges may add several layers of complication for both collector and dealer. The dealer may owe a consignor after the swap has taken place, and that person is not likely to want anything other than cash; a dealer now in possession of a house now will be the one scrambling for money to pay the consignor. The object offered in exchange for art may need to be appraised, and differing estimates could lead to protracted negotiations that slow down the sale and sour the relationship between dealer and collector. Even a generous appraisal, of course, is not money in the bank, "and someone may end up getting the short end of the stick," Peters said. Of the three instances in which he has accepted stocks for artwork, "in one case, I made out great, making 10 times my money; in another case, I guess I came out even." In the third instance, he needed to hold onto the stock, waiting for a favorable time to sell.

When a collector offers artwork in exchange for a piece, the dealer may accept the work in a straight swap or arrange to sell the offered object in order to raise money toward purchasing the piece. Robert Fishko, director of New York's Forum Gallery, has "acquired works for inventory, and you take a risk every time when you do that," while Emmerich "put up at auction" works offered by collectors in exchange, because "I don't like to gamble. If I sell you a painting for $100,000, I want $100,000. I don't want to hope that I can some day sell it."

At other times, the artwork offered by the collector may be outside of the field in which the dealer operates. Jane Kallir, director of Galerie St. Etienne in New York City, which specializes in Austrian and German expressionist art, described being offered once a drawing by Henri Matisse. "We could sell it for them, but there are many other dealers much more in touch with the Matisse market than we are," she said, adding that she recommended the collector sell the drawing through one of those dealers and then purchase the artwork at her gallery. At other times, Kallir has brokered a sale through another dealer on behalf of a collector.

Dividing the exchange into two separate transactions (selling one item and buying another) simply makes the most sense, Kallir said. "Collectors should want to net as much money as possible, rather than just match the dealer's wholesale price." She added that it is sometimes difficult to get the sale and purchase dates to coincide, lessening the opportunity for the collector to use one artwork to acquire another.

There are also tax considerations in making a swap, primarily because this exchange is a type of sale. Both dealer and collector may need to declare capital gains for the sale and not have the cash with which to pay the tax. The Internal Revenue Service permits tax-free "like-kind" exchanges -- for instance, a painting for another painting -- but only when the objects involved were acquired for investment purposes rather than as a hobby; in other words, professional art dealers may swap those paintings tax-free but an ordinary collector could not. The burden of proof would be on the collector both to show the IRS that he or she is an investor and that the exchanged objects were "like-kind." There would be no possible tax-free exchange of a house or jewelry for artwork.