Andrew Mellon was already one of the world's richest men at 65. In the fall of 1920, he could have stayed home in Pittsburgh. He rode a train to Marion, Ohio, instead, and walked a mile on his own to Warren Harding's house. A reporter spotted him and couldn't believe it. The trip led to a new job late in life, and that job ended in a tax-fraud case.
Tevi Troy reviews The President and the Oligarch in Tuesday's Bookshelf. The author, Greg Steinmetz, once reported for the Journal. Harding made Mellon Treasury secretary. He stayed until early 1932, through Calvin Coolidge and Herbert Hoover. That made him the only person to run the Treasury in three administrations. He pushed for low debt and ‘scientific taxation,’ the most revenue without choking growth. Steinmetz writes that with Mellon “at the till, the country enjoyed towering prosperity.” Troy calls his economic record remarkably effective. Not everyone agreed at the time. In 1926 Franklin Roosevelt quipped that Coolidge wanted God on his side but had to have Mellon.
The tax code as a weapon
Troy says Mellon's law-enforcement calls were worse than his economics. Under pressure to jail Al Capone, Mellon had him prosecuted for tax evasion. It worked. Capone got 11 years in 1931. But Steinmetz reads the case as a warning that “the government could and would use the tax code to harass those it opposed.” That soon included Mellon. In 1932 a Texas congressman moved to impeach him. Hoover sent him to London as ambassador. Roosevelt won that November. His White House then followed the Capone playbook and charged Mellon with tax fraud. One main claim was that he'd deducted his art purchases. The paintings hung in private, the charge went, so they served no public benefit.
Mellon had a surprise waiting. He planned to give the art away as the founding collection of the National Gallery of Art in Washington. He stayed out of jail and got Roosevelt to sign off on the museum. Troy calls the prosecution unjust, and the book makes that case. We'll leave the politics to the historians. The ending is plain enough. Mellon died of cancer on Aug. 26, 1937, at 82. The ruling that cleared him came four months later. Nearly four years after his death, Roosevelt opened the National Gallery.
Our read
This is a Tax story dressed as history. The IRS still asks the question at its heart. It wants to know whether a gift served a public purpose, and whether you can prove it. Mellon's deduction was challenged because his paintings sat in private. His defense was a gift to a public museum. The same idea lives on in today's rules for giving art. A gift of art to a charity that uses it in its own work, like a museum that hangs it, is generally treated better than one it just sells. And a gift of property needs paper behind it. That means a qualified charity, a receipt from the charity, and for most big non-cash gifts, a proper appraisal. General principles, not advice for anyone in particular.
Here's the connection for this week. If you've given, or plan to give, stock, art or land to a charity, pull the file. Check for the charity's written thank-you letter, the date the asset changed hands and the value you claimed. For property other than publicly traded stock, over $5,000, the IRS generally wants a qualified appraisal too. If anything is missing, ask the charity for a fresh letter now, and bring the file to your next tax review. Mellon had a museum to point to. Most of us have a folder, and it's best filled before the clouds roll in.