Grossman LLP | Art Collector Indicted For Tax Evasion, Highlighting Law Enforcement's Continued Focus On Financial Wrongdoing in the Art World
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  • Art Collector Indicted For Tax Evasion, Highlighting Law Enforcement's Continued Focus On Financial Wrongdoing in the Art World
    09/09/2016
    Real-estate developer and art collector Michael Shvo has been indicted in an alleged tax-evasion scheme relating to fine-art purchases. Shvo allegedly participated in a scheme to evade over $1 million in state and local sales tax associated with the purchase of fine art and other luxury items, according to a press release from the Manhattan District Attorney’s Office, by falsely representing to art galleries and auction houses that his purchases would be shipped out of state, when they were actually shipped to his New York addresses. (If he is found guilty, this wouldn’t be the first time Shvo fleeced the people of New York.)  Sheridan Hedley and Guy Drori, along with their respective shipping companies, are also implicated by their role in providing sellers with false or misleading shipping documentation.

    Manhattan DA Cyrus Vance has also filed a civil action seeking forfeiture of funds earned during the alleged scheme, and has obtained a temporary restraining order on $1.5 million of Shvo’s assets.  Shvo, who pleaded not guilty, turned himself in to authorities on September 8, 2016 and has been released on $500,000 bail.  Under New York state law, Shvo faces a prison sentence of up to 15 years.

    The DA’s Office has partnered with the NY State Department of Taxation and Finance and the New York City Department of Finance to investigate and combat tax fraud.  And New York State Attorney General Eric Schneiderman has made tax abuse in the art market a priority lately, as evidenced by the recent investigations of Aby Rosen, another New York real-estate developer (who paid $7 million to settle claims he evaded taxes on over $80 million worth of art purchases), Victoria Gelfand, a Gagosian director (who paid $210,000 in unpaid taxes on over 30 pieces of art), and the Gagosian Gallery itself (which agreed to a $4.28 million settlement for failure to pay tax on art sales).   (None of these settlements included admissions of any wrongdoing.)

    Art dealers and collectors alike should take note that state and local authorities have committed to crack down on tax-evasion schemes involving high-priced art deals.  As DA Vance warns, the Shvo indictment “puts other purchasers of fine art on notice: the purposeful evasion of New York State and City taxes is a tax crime, and those who scheme to avoid their obligations will be held criminally and civilly accountable.”