Dr. Dale B. Dubin, a Florida plastic surgeon, bought a 13 1/2-pound topaz crystal for $750 in 1972.
In 1978 Dubin had the topaz appraised at $846,300 and, a year later, at $1,057,800--more than 1,000 times his purchase price. Over the next four years, Dubin gave nearly two-thirds of the stone to the Smithsonian Institution's Museum of Natural History, claiming the dramatic increase in the value when he deducted the gift from his federal income taxes. To date museum records indicate, and Dubin confirms, that he has taken tax deductions of more than $500,000 for the gift.
The Internal Revenue Service, which has recently challenged several gifts of gems to the Smithsonian that have been appraised at five times their purchase price, is disputing nearly all of Dubin's deduction.
Ralph Muoio, Dubin's attorney, says that a new technology combining irradiation and heating of the topaz crystal accounts for the increased value. The topaz has already received a partial treatment that has turned it a dusky brown. Further treatment could turn the stone, water-clear when purchased, to an electric blue, and it could then be cut into a myriad of smaller gems for the jewelry market, Muoio says.
In addition, Muoio says that Dubin is entitled under law to deduct the gift at its fair market value and that the two appraisals were done by two independent and respected gem experts.
Al Hazzard, the Connecticut mineral dealer who sold Dubin the stone in 1972, says he has similar stones for sale today, and that he would sell the one he sold to Dubin for between $11,000 and $16,000.
When told of the appraised value Dubin had used, Hazzard whistled and said, "Wow! That's a lot of bucks. God bless him. Lots of luck."
Dr. Martin Welt, the physicist who says he treated Dubin's stone for an estimated $1,000, says he is surprised Dubin donated the topaz to the Smithsonian.
"I've got a pot load of this crap irradiated topaz around here and I don't know what it's worth," said Welt. "I've got thousands of carats of stones, beautiful colors . . . . Does the Smithsonian need any more? . . . Dubin should have at least sent me a bottle of wine or a thank-you note."
Welt, a recognized expert in the field of topaz irradiation, says the topaz might turn blue with further treatment, but that there is also a small chance that in the heat treatment stage "that stone could go from valuable to dust in an instant."
Dubin is one of dozens of Smithsonian gem and mineral donors the IRS has challenged for deducting their gifts at what the IRS claims are grossly exaggerated values. Such gifts are also the subject of an internal debate at the Smithsonian over whether the revered museum has a responsibility to police against potential abuses of legitimate tax shelters.
The Smithsonian, like many museums around the nation, has taken the position that such matters are between the IRS and the taxpayer, and that the museum's only consideration is whether the gift is desirable for the collection.
In recognition of Dubin's gift, the Smithsonian in 1979 awarded him a Smithson Medal, an honor reserved for the institution's most prominent donors.
Dr. George Harlow, curator of minerals at New York's American Museum of Natural History, says, "The real issue is what does the Smithsonian see it the topaz as; do they need it? . . . The whole position of morality in the museum is a very difficult one to evaluate, partially because of the question of 'if you don't accept it, someone else will,' so you're just spiting your face to be honest."
Dubin's topaz was appraised by William Pinch of Rochester, N.Y., and Charles Key of Sarasota, Fla. Pinch declined comment. Key said he was "one hundred percent certain" that the Dubin topaz--which he describes as a top-quality specimen--would turn a rich blue and be of great value in the jewelry market.
Muoio says the untreated topaz is analogous to a work of art not yet completed. "It would be like an artist buying a canvas for a thousand bucks and then putting a painting on it and selling it for a lot more than he paid for the canvas."
"It turned out something he Dubin bought for a relatively small amount of money, because of the advances in technology, is now worth a lot . . . . He got among the two best appraisers in the country to appraise it, and when they tell him it's worth something, then what more can a taxpayer do?" Muoio said.
In a 1980 revenue ruling the IRS took the position that the best indicator of what a stone is worth is what the donor paid for it, not a speculative value based on an abstract formula.
Clear topaz, relatively undesirable for use in jewelry, has been irradiated since the early 1970s and, once blue, is sold widely as a less expensive alternative to aquamarine.
Robert Crowningshield, vice president of the Gemological Institute of America, says irradiated topaz is commonplace and the market price for such stones has dropped dramatically because of an oversupply that occurred after the Dubin appraisals.
Dubin lent the stone to the Smithsonian in July, 1978. According to a Dec. 12, 1978, agreement signed by Dubin and then-Smithsonian curator Paul Desautels, Dubin promised to eventually give the entire stone to the museum. He arranged to give the museum only a part interest in the stone each year, and this allowed him to spread out the tax deduction over those years.
Museum records show Dubin gave the Smithsonian 10 percent of the 30,225-carat stone, or 3,023 carats, in 1978. His attorney, Muoio, says Dubin deducted it from his income taxes as a charitable gift, relying on an Oct. 27, 1978, appraisal of $846,300 by Charles Key.
Key, 48, a mineralogist and appraiser, is one of the nation's most prominent treaters of topaz. His appraisal is a part of the Smithsonian records.
Also a part of Smithsonian records is a Dec. 12, 1978, let- ter from former curator Desautels to Dubin, thanking him for the gift:
"I'm absolutely delighted that you have changed your mind and decided to give us the topaz crystal permanently," Desautels' letter said. "When I first saw it long ago in your home in Tampa you will recall that I coveted it for the national collection . . . . Someday we may get it irradiated because we could certainly use an all-blue crystal . . . ."
In 1979, Smithsonian records show, Dubin gave the museum an additional 24 percent or 7,345 carats of the crystal. That year Key reappraised the stone and said that, in the year since the first appraisal, it had increased in value by $211,500 to $1,057,800. Key said the updated appraisal reflected an increase in the retail value of blue topaz.
Museum records show that by 1981 Dubin had given the Smithsonian 19,011 carats--about two-thirds of the crystal.
Today the stone Dubin donated is on a shelf in the museum's mineral storage room. It is a dusky brown, the result of the earlier irradiation treatment, the first step toward turning it from clear to blue.
Smithsonian Curator-in-Charge John White and other museum officials say they were not aware that the topaz had been treated and that the stone's brown hue was radiation-induced, not natural.
"Our records don't show that it's been treated . . . ," White said. "That's a revelation as far as I'm concerned." CAPTION: Picture, The topaz, appraised at $1,057,800 in 1979, was bought originally for $750. By Dudley M. Brooks -- The Washington Post