Death, Art, Taxes
The Art Advisory Panel of the Commissioner of Internal Revenue is tasked with reviewing tax transactions on art worth over $50,000 that has been sold, donated, or otherwise changed hands in the past year.
Accordingly to a recent Wall Street Journal article, artists, gallerists, and collectors are not the only ones scrutinizing the stated value of artwork. Officially known as the — appropriately bureaucratic — Art Advisory Panel of the Commissioner of Internal Revenue, the volunteer group is the Internal Revenue Service’s art world audit team, tasked with reviewing tax transactions on art worth over $50,000 that has been sold, donated, or otherwise changed hands in the past year. So are hoards of greedy art marketeers fudging the numbers for a lower tax obligation? Yes, roughly half of the transactions reviewed by the taxman have their values corrected. The panel agreed with just 51 percent of taxpayers’ filed assessments in 2012, finding fault in the declared value of nearly 200 estate pieces.
What the panel then does with these figures is review whether the taxed value of art sold or donated was correctly set. This sounds actuarial, but it can be quite important as the process is ripe for abuse. The incentive to exaggerate the value of an artwork cuts both ways, so the panel reviews assessments in a decontextualized fashion. This helps maintain the objectivity of the judgment, as in instances of inheritance or certain “off-the-market” private sales, a lower appraisal is generally advantageous, as it results in a lower tax burden, whereas in a donation, it’s just the opposite — a higher appraisal will result in a larger tax break.
For most of us the panel is nothing to worry about. That $25 zine or $50 poster on your wall is safe. But in well-heeled circles, the advisory group is a big deal, as their decisions are opaquely rendered and nearly impossible to appeal, per the Wall Street Journal. Last year the panel reviewed 444 works worth a total of $348 million, or an average of $784,000 apiece. To put that into perspective, the average value in 2010 was $545,000 and before that, in 1992, it was approximately $136,000, revealing the startlingly degree to which art and commerce has merged in the last two decades.
