The following story appears on page 24 of the March 12, 2012 issue of Forbes magazine.

What’s the market value of a Robert Rauschenberg that can’t be sold without risking a year in the federal pen? According to the art mavens at the Internal Revenue Service, it’s $65 million, because a theoretical Chinese billionaire might pay that much on the black market. Really.

The backstory: After legendary modern art dealer Ileana Sonnabend died in 2007 at the age of 92, her heirs sold off some of her collection to pay a whopping estate tax bill:

$331 million to Uncle Sam and $140 million to New York State. They sadly parted with works by Jeff Koons, Roy Lichtenstein, Andy Warhol and Cy Twombly, reportedly to such billionaire collectors as French luxury-goods titan François Pinault.

But they couldn’t sell Sonnabend’s most famous holding—Rauschenberg’s collage “Canyon”—because it includes a stuffed bald eagle, and two federal laws bar possessing or trafficking in the bird, dead or alive. (After U.S. Fish & Wildlife agents spotted the verboten eagle in 1981, Sonnabend got a special permit to retain “Canyon” and lend it to museums. It’s now hanging at New York’s Metropolitan Museum of Art.)

The Sonnabend estate tax return pegged her total worth at $876 million, including $0 for “Canyon,” based on appraisals from Christie’s and others. The IRS billed the estate for more tax, valuing “Canyon” at $65 million.

Ralph E. Lerner, the top art lawyer representing the estate, has sued the IRS in Tax Court and is vowing to fight the issue “all the way.” The IRS has long taken the position that it can tax stolen or illegal items in an estate based on “illicit market” value. But Lerner says this is different—Sonnabend ­complied with the law, and the estate isn’t ready to go rogue to sell “Canyon.” Plus, there’s no black market for an iconic piece, anyway.

When he called the chairman of the IRS art panel to complain, Lerner reports, “He told me there could be a market. For example, a recluse billionaire in China might want to buy it and hide it.” Says Lerner: “It’s bizarre. It sounds like a James Bond movie.” The IRS declined comment.