A panel of museum directors, curators, art scholars and dealers (the Panel) helps the Internal Revenue Service value artwork gifts.
At stake are income tax deductions for charitable donors and gift and estate taxes for gifts to family members and other non-charities. The Panel reviews artworks valued at $50,000 or more. If the Panel rejects a taxpayer’s appraisal, it may suggest a different value, get additional information or consult a specialist. The Panel provides advice and makes recommendations to the Art Appraisal Services (AAS) unit in the Office of Appeals for the IRS. In Fiscal Year 2017, AAS adopted 67 percent of the Panel’s recommendations. The Panel’s specialty areas include paintings and sculpture, decorative arts and antiques. Currently there are two subcommittees: the Fine Arts Panel, which reviews paintings, sculpture, watercolors, prints and drawings; and the Decorative Arts Panel, which reviews items such as antique furniture, decorative art, ceramics, textiles, carpets and silver.
How The Panel Operates
AAS takes steps to ensure objectivity and taxpayer privacy. Information provided to the panelists doesn’t include the taxpayer’s name, the type of tax, the tax consequences of any adjustments to the value or who did the appraisal. To minimize the possibility that panelists recognize a taxpayer’s entire collection, the artworks are usually discussed in alphabetical order by artist or, in the case of decorative art, by object type. If there’s a conflict of interest with a panelist and a work of art under review, the panelist doesn’t participate in the discussion and is excused from that portion of the meeting.
Before Panel meetings, AAS appraisers send photographs and written materials to the panelists about the works of art under review. The materials include information from the taxpayer’s appraisal, such as size, medium, physical condition, provenance, any comparable sales and appraised value and the AAS appraiser’s own research, including available information on public and private sales of relevant art work.
During the Panel meetings, the panelists review the information provided, along with the research and findings of both the panelists and AAS appraisers. After discussing each item individually, the Panel reaches consensus on the value of a subject work. Panel discussions are lively and serious. Despite the different perspectives of dealers, museum curators and scholars, substantial disagreements are rare. When disagreements occur, they generally result from insufficient information. In these cases, the panelists may recommend additional research, such as inspecting the property or consulting with additional experts, before making a recommendation as to value. Once the AAS appraiser completes the additional work, the item may be brought up for review at a subsequent Panel meeting.
The Panel’s recommendations are advisory. The AAS staff reviews all the Panel’s recommendations, which become the position of the IRS only with AAS concurrence.
The Panel’s 2017 Annual Report
The Panel reviewed 365 items with an aggregate taxpayer valuation of $205,433,138 on 66 taxpayer cases under examination. The average claimed value for an item reviewed by the Panel was $562,831.
The Panel recommended accepting the value of 143 items or 39 percent of the items presented. It adjusted 222 items or 61 percent of the appraisals it reviewed. On the 222 items adjusted, the Panel recommended total net adjustments of $28,236,211 to the appraised values, a 13.7 percent increase.
The Panel reconsidered two items originally valued at $2.75 million by the taxpayers and $7.9 million by the Panel. After reviewing the additional information, the Panel made no revisions to their original recommendations. The items reconsidered weren’t included in the above information. AAS accepted the Panel’s recommendations on 245 items. In charitable contribution cases, AAS not only considers the Panel’s recommendations but also the substantiation requirements set forth in the Internal Revenue Code and corresponding regulations.
In an intentional break from prior year reports, beginning with the 2015 Annual Report, the items reviewed and adjusted aren’t broken down to show which adjustments were for estate and gift tax appraisals and which were for charitable contributions. In the 2016 Annual Report, it was noted:
"This format... avoids potential Internal Revenue Code section 6103 [Confidentiality and Disclosure of Returns and Return Information] disclosure concerns in situations where there may be too few items in a particular category (estate, gift or charitable contribution) to report separately."
In prior reports, when a breakdown of the adjustments was given, it was the immutable pattern year after year: IRS viewed taxpayers’ valuations as high for charitable transfers (for which income tax deductions are claimed) and low for noncharitable transfers (on which IRS wants estate and gift taxes). Not surprisingly, taxpayers see it just the other way around. Although the specific breakdown wasn’t given in this report, it can be presumed that this view of valuations by the IRS hasn’t changed, and the pattern of adjustments continues.
Binding Valuation Agreement
By paying a user fee, a donor of a work of art appraised at $50,000 or more can get a Statement of Value from the IRS that establishes the value of art gifts for income, gift, and estate tax purposes. Taxpayers may obtain a Statement of Value from the IRS for an advance review of art valuation claims prior to filing the return. The Statement of Value may then be used to complete the taxpayer’s return. The donor must request the Statement of Value after making the gift, but before filing a tax return claiming the charitable deduction. The fee is $6,500 for a Statement of Value for one to three items, plus $300 for each additional item. (See Revenue Procedure 2018-1, Appendix A, 2018-1 (Jan. 2, 2018); Rev. Proc. 96-15).
Method of payment. User fees for Statement of Value requests made pursuant to Rev. Proc. 96-15 must be made by direct debit from a checking or savings account through the Pay.gov website. Payment confirmations are provided through the Pay.gov portal and should be submitted with the Statement of Value request. Art Appraisal Services won’t consider a Statement of Value request complete, and will hold the request in suspense, until the correct user fee is paid through the Pay.gov website. Use of Pay.gov replaces the mailing or hand delivering of user fees. Using the Pay.gov website to submit Statement of Value user fees is mandatory.
Address for Statement of Value requests. Send requests to: Internal Revenue Service/Art Advisory Services, 1111 Constitution Avenue, Suite 700, C:AP:SO:ART, Washington, DC 20224-0002, ATTN: AAS.
Note from IRS: It’s recommended that a private delivery service be used, as packages sent via USPS are subject to irradiation which may damage professional photographs.
© Conrad Teitell 2018. This is not intended as legal, tax, financial or other advice. So check with your adviser on how the rules apply to you.
