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Mohney Sues Henkel Over Rejected Appraisals of Erotic Collection

Follwing a two year audit, the IRS rejected Mohney's entire charitable contribution, valued around $10 million, reportedly because of problems with the appraisal

Mohney Sues Henkel Over Rejected Appraisals of Erotic Collection

LAS VEGAS, NV—In 2008, Harry Mohney’s Erotic Heritage Museum in Las Vegas opened its doors, to much acclaim. Featuring 24,000 square feet of various types of erotic memorabilia, Sin City had never seen anything like it. The brainchild of Dr. Ted McIlvenna of the Exodus Trust—a San Francisco-based non-profit educational organization that owns the Institute for the Advanced Study of Human Sexuality (IASHS), which is run by Mcllvenna—and porn mogul Harry Mohney, who founded the club/adult bookstore chain Déjà vu Consulting, is the owner of as many as 50 gentlemen’s clubs around the country and who donated the majority of the museum’s original exhibits.

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According to recently filed court documents, during his lifetime Mohney amassed, “as a result of his lengthy involvement in the adult entertainment industry, an extensive arid vast collection of expressive erotic materials in the form of, among other things, films, books, magazines, flyers, videotapes and the like.”

The history of how his collection came to be donated and its role in the creation of the museum is included in a complaint filed Oct. 31 by Mohney in his lawsuit against Laura Henkel, the curator of the museum and the person picked by Mohney, reportedly at the suggestion of McIlvenna, to appraise his erotic collection in order to get a charitable deduction for the materials he planned to donate to Exodus for use in the museum.

Mohney has accused Henkel of fraud and misrepresentation, breach of contract and malpractice concerning the professional appraisals she conducted of his collection in 2005 and 2006. A two-year government audit begun in 2008 resulted in most of the claimed tax deductions for his collection being disallowed by the IRS.

“The tax deduction of $5.7 million in 2005 and $4.2 million in 2006 [is] neither reasonable nor substantiated,” said the IRS in its audit report. The appraisal(s) did not accurately identify or value the property said to have been donated. The appraisal(s) fail to meet other requirements defining a qualified appraisal.”

The audit resulted in the complete disallowance of the charitable contributions for 2005 and 2006, as well as the application of a "gross overvaluation misstatement" penalty of 40 percent for both years as per IRC §6662(h).

Mohney now claims that Henkel made a number of false representations on her resumé about her qualifications and experience as a professional appraiser, and that she also failed to disclose to him or his attorney that she worked as an “employee of the Exodus Trust at times before, during and after the appraisals that she conducted for Mohney.”

In the final analysis, Mohney lays the blame for his IRS debacle squarely on Henkel, claiming that, “As a direct and proximate result of the misrepresentations and omissions of disclosures by Henkel, her lack of qualifications, her lack of independence, her failure to maintain records, her inability to defend her valuations, her inability to substantiate and replicate her valuations, and her failure to provide necessary documents as part of the Audit process, Mohney was left with no choice but to settle the tax Audit whereby the majority of his charitable deductions as set forth in the Appraisals was disallowed; where he was required to pay significant taxes on his charitable donation of erotic materials that, had the appraisals been appropriately conducted and/or had Henkel been able to appropriately justify such valuations during the Audit process, he should have been able to fully and properly deduct; and where he was required to pay substantial and significant interest and penalties; all of this being as a result of the incompetence, actions, inactions, and misrepresentations of and failures to disclose by, Henkel.”

That assessment appears to be backed up by the IRS itself, which according to the complaint, claimed in the Audit report that “the collection will be disallowed in full based on Tres. Reg. §1.170A-3 (c)(3) through (5) that disallow the charitable contribution in full based on lack of a qualified appraisal and appraiser. Even though the contribution shall be disallowed in full, this does not neglect the fact that the contribution was grossly overvalued thus [it] is also the government's position that there shall be applied the gross valuation  misstatement penalty.”

AVN contacted Henkel, who has said the allegations are “totally false,” to ask whether her reply also holds for the claims made by the IRS.

“I have not been informed about the details of Mr. Mohney's dealing with the IRS,” she replied, “Therefore, I am unable to comment.  I anticipate that the details of that IRS investigation, and the truth, will come out in this litigation.”

Coincidentally, CNBC today posted an article to its website titled, “Porn Memorabilia Becoming a Legitimate Collectible,” which offers a sort of bemused look at the “new” marketplace, and includes several quotes by McIlvenna about collectors’ increasing appreciation for erotic material, which he says is only being stoked by the “factory-like production” of digital content available on the internet, often for free.

"A lot of the films people are rediscovering is happening because so much of the stuff they're making now is fast and furious," he said.

The article contains no mention of the lawsuit, which is unfortunate considering that CNBC targets potential new investors of erotic memorabilia.

Included with the complaint (available here) are attachments containing Henkel’s Appraisal Reports, which contain detailed lists of the appraised material. According to reports submitted in June and August of 2005 covering the first two of three batches of content appraised on behalf of Exodus Trust, Henkel inspected Mohney’s property on nine occasions starting in 2004 and into the next year.

According to the June 2005 report, the first batch consisted of:

994 1970-1980 mint condition 16mm feature films @ $2500.00 each =. $2,485,000.00

1,027 1970-1980 mint condition feature flyers @ $5.00 each = $ 5,135.00

7,714 1970-1980 mint condition 16m loops @ $400.00 each = $ 33,085,600.00

22,998 1970-1980 mint condition press kits @ $15.00 each = $344,970.00

Total = $5,920,705.00

According to the August 2005 report, the second batch consisted of:

13 1970-1980 mint condition loops @ $400.00 each = $5,200.00

5 1970-1980 mint condition trailers @ $400.00 each = $4,400.00

10 1970-1980 mint condition short films @ $400.00 each - $5,600.00

2,338 1970-1980 mint condition feature films @ $2500.00 each = $5,857,500.00

Total = $ 5,872,700.00

The attachments do not include a report for the 2006 appraisal.

Photo: The Erotic Heritage Museum exterior and Harry Mohney with Laura Henkel, during happier times, at the Feb 2009 screening of Sunny Leone's new movie, Dark Side of the Sun, which premiered at the museum.






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