Whenever
a U.S. taxpayer dies or gives away valuable art—or any time it changes hands
other than through a sale—Uncle Sam has an interest in knowing its true value.
The art panel protects that interest, by vetting values submitted by taxpayers
or executors; in other words, they make sure the deduction for the donation of
that Jackson Pollock masterpiece is accurate.
Do you have any valuable art in
the family? If yes, then you need to be more than familiar with the Art
Advisory Panel. Its opinion is potentially your burden. When it comes to
taxation, no one likes surprises.
The Art Advisory Panel is, in
the history of the tax code, a fairly new invention dating back to 1968.
Despite its relatively recent existence, the influence of the Art Advisory
Panel has only increased over the intervening decades as the value of art
itself has skyrocketed.
The Wall Street Journal recently
provided an introduction to the Panel in an article titled “The Art (Tax) Police.”
Practically speaking, the value
of art is ambiguous at best, and yet it is also very real. Just because you regard
a painting as “priceless,” some potential purchaser just might give you, your
estate, or your heirs a very definite and taxable price for it. The Art
Advisory Panel exists to double-check your numbers on the real-world taxable
value of the artwork for the purposes of the assessment of taxes or even
charitable deductions. Consequently, the Panel truly is the tax police of the
art world, scrutinizing any piece of art assigned a value of more than $50,000.
Happily, the Panel finds in
favor of the taxpayer about half of the time. Unhappily, those taxpayers on the
losing end find themselves stuck with a larger than anticipated tax bill and,
perhaps, penalties.
When it comes to the valuation
of art, it is worth your time to get a qualified appraisal so you are
well-prepared if the IRS calls in the art (tax) police.
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Reference: The Wall Street
Journal (September 20, 2013) “The Art (Tax) Police”