Tax Court on Murky Facts Affirms Deficiency on Net Amount Taxpayer Retained from Flow of Funds (9/15/26)

In Tunkl v. Commissioner, T.C. Memo. 2026-83, Tunkl was an art dealer for the wealthy (at least some of the wealthy). He managed to arrange a flow of funds from one other wealthy art dealer, initially to finance his acquisition for a particular painting but not actually used for the painting. The precise nature of that flow of funds is murky because people in such wealthy circles in art may not fully document flows of funds, but when the smoke cleared Tunkl ended up with $16.5 million net. The IRS determined a deficiency for tax on that amount. (I did not read closely enough to determine whether the deficiency asserted the tax to Tunkl directly or through his subchapter S corporation; the bottom-line is that the deficiency was Tunkl’s in either event.)

In getting past the murkiness in the facts, the Court concluded (*10).

          Finally, and most importantly, Mr. Tunkl has been permitted to keep the entire amount he received from Mr. Mnuchin. Mr. Tunkl repaid only $2.5 million of the total $44 million owed to Mr. Mnuchin. Pursuant to the Addendum, the $16.5 million owed from the Picasso painting deal was severed from the Note into its own smaller note. Mr. Tunkl has provided no evidence demonstrating that the $2.5 million was partial repayment of this smaller note. Therefore, Mr. Tunkl has failed to demonstrate that he was not permitted to keep the entire $16.5 million.

JAT Comments:

1. It seems to me that taxing the net benefit to Tunkl is the right answer. My only thought/concern was that, given the murkiness in the facts, it is at least possible that the income may not have arisen in 2018 the year for which the notice of deficiency was issued. I suppose, however, that if Tunkl had fought the timing battle, he may have still lost for the tax via the mitigation provisions of the Code, but possibly might have achieved an interest benefit if a later year were the proper year.

2. Tunkl’s arguments for nontaxation (i.e., loan/deposit, etc.) were weak because of the murkiness of the facts, but still Turkl's arguments did not account for the fact that Tunkl kept the net amount the IRS sought to tax.

3. The Mnuchin in the drama—the source of the funds flow—was Robert Mnuchin, formerly of Goldman Sachs and then an art dealer, who was the father of Steven Mnuchin, formerly also of Goldman Sachs and Secretary of the Treasury in Trump’s First Administration. See Wikipedia, Robert Mnuchin, https://en.wikipedia.org/wiki/Robert_Mnuchin.