A $7 million fake Max Ernst painting by German artist Wolfgang Beltracchi. A New York dealer sold another of Beltracchi's forged Ernst paintings for $2.5 million.
A $7 million fake Max Ernst painting by German artist Wolfgang Beltracchi. A New York dealer sold another of Beltracchi’s forged Ernst paintings for $2.5 million. ()

ALBANY – A prominent Manhattan art dealer is not entitled to a refund of the state taxes he paid on the $2.5 million sale of an oil painting that turned out to be a sophisticated forgery, an administrative law judge has determined.

While not responsible in any way for the fake Max Ernst painting sold under the name “La Forêt,” dealer Richard Feigen was deemed ineligible for a $215,625 sales tax refund because he filed too late to qualify under state Tax Law §1139(c), Division of Taxation ALJ Winifred Maloney decided.

“It is unfortunate that it took so long for the painting to be determined to be inauthentic, but that is a risk petitioner assumes every time it makes a sale,” Maloney wrote in Matter of Richard L. Feigen & Company, 824996.

Maloney said admissions by Wolfgang Beltracchi, a German forger and artist, that he had created a series of fake paintings that were mistaken for genuine Ernst works, including “La Forêt,” circa 1926-27, led to doubts about the painting’s authenticity and ultimately to recission of the sale.

Beltracchi was sentenced in 2011 to six years in prison for forgery and acknowledged a long-standing scheme where he created previously “unknown” works by master artists with such uncanny technical precision that they were declared authentic by fine arts experts.

Feigen sold what he believed to be a piece that surrealist Ernst had painted to Anna-Marie Kellen in January 2004 for $2.5 million. About four months earlier, Feigen had bought the painting from a Paris art gallery, the Galerie Daniel Malingue, for $2.325 million.

In February 2015, the Feigen dealership paid the sales tax to the Department of Taxation and Finance on returns it filed for the period Jan. 1, 2004, through Jan. 31, 2004.

Maloney decided that Tax Law §1139(c) was clear in providing a three-year window after filing sales tax returns to make a refund claim, or two years from when the tax was paid.

Either way, the window of opportunity for Feigen to file a valid claim closed in early 2008 at the latest, said Maloney, who noted that Feigen’s application for credit or refund of the sales tax was not filed until June 21, 2011.

Maloney rejected Feigen’s contention that the statute of limitations on the filing should have been tolled until, at the earliest, March 1, 2011. The art dealer argued that CPLR 213 provided that civil actions based on fraud provide a six-year statute of limitations which begins from when the cause of action accrued or two years from when the plaintiff discovered the fraud.

Maloney determined that applying CPLR 213 to sales tax refund filings was “without merit.”

She held that not only did §1139(c) expressly disallow refunds from being granted after the two- or three-year statute of limitations has expired, but also that “public policy does not favor the granting of refunds beyond the allowed period of time.”

Quoting the 2011 state Tax Appeal Tribunal in Matter of Renaud, 823595, Maloney wrote that there must be certainty that past a certain date, a financial matter is closed.

“At the end of the period, the matter is settled,” the tribunal wrote. “Anything less than this degree of certainty would make the financial operation of government difficult, if not impossible.”

Maloney also rejected Feigen’s contentions that the failure to refund the money is a violation of the dealer’s due process rights. She said the statute of limitations laid out in the tax statute establishes balance “between the needs of the state to protect its financial resources and the right of taxpayers to correct their errors.”

She also declined to reverse the denial in the interest of “equity and justice.” Maloney wrote that §1139(c) sets the time limits for filing refunds and the “Division of Tax Appeals does not have the authority to grant a claim for refund of sales tax filed after the expiration of the statute of limitations.”

Speaking by telephone Tuesday by Europe, Feigen said he was dismayed by Maloney’s determination.

“I can’t imagine that New York would want to collect a sales tax on a sales that was cancelled,” Feigen said. “I can’t imagine how they can justify collecting tax on a non-sale.”

Feigen said he was likely to appeal Maloney’s determination to the state Tax Tribunal, the panel of last resort for administrative appeals of decisions by the Department of Taxation and Finance. Petitioners can bring their appeals to the Appellate Division if they receive adverse rulings before the Tax Tribunal.

“I don’t see how I have any recourse other than pursue it,” Feigen said.

Feigen said he was unaware of problems with the sale of “La Forêt” until late in 2010, when he began receiving emails from Daniel Malingue suggesting that the painting may be a fake.

Subsequent communications with German authorities led Feigen to retrieve the painting from Kellen, and in March 2011, Orion Analytical of Williamstown, Mass., performed a scientific examination of the painting and the materials and concluded that “rigorous investigation of such artwork must at least include a consideration of the possibility that an intentionally misleading object was created.”

Feigen bought back the now-presumably valueless painting from Kellen in 2011 for $2.5 million. Daniel Malingue, in turn, repaid $2.325 million that Feigen gave the Paris art gallery for the work, but that amount did not cover the sales tax.

Beltracchi’s forgeries created something of a scandal in European art circles. Feigen and other one-time owners of what they thought were real Ernsts were mislead in part by certificates of authenticity issued by Ernst expert Werner Spies, who acknowledged that he was tricked by the highly sophisticated forgeries of Beltracchi.

“It faked a lot of people, including the world’s foremost authority on Max Ernst,” Feigen said. “This was not a copy of something else. It was an extremely clever forgery. A lot of people were fooled who knew Max Ernst’s work very well.”

Davidoff Hutcher & Citron partner Malcolm Taub represented Feigen.

Division of Taxation assistant counsel Marvis Warren argued for the tax agency.

Maloney’s determination upheld decisions by the Division of Taxation’s Audit Division and its Bureau of Conciliation and Mediation Services which both denied Feigen’s refund filing.