New York Estate Planning & Elder Law Blog
GOVERNMENT HAS BEST AT HAND – FOR FREE
Whenever a taxpayer submits tax documents that deal with a work of art or of cultural significance that is valued at least $50,000, according to the taxpayer’s own estimate, the IRS goes through a process by which it independently evaluates the items. The IRS has on hand the very best of the best when it evaluates art and cultural items. More specifically, it has the Art Advisory Panel of the Commissioner of Internal Revenue, which is composed of the very best of the best when it comes to art evaluation. Better still, at least from the perspective of the IRS, they are volunteers and only reimbursed for travel and related costs.
It is relatively easy to understand that they would evaluate paintings, such as Degas, Monet and Van Gogh or photographs from the likes of Matthew Brady, Edward Curtis or Dorothea Lange. But things such as collections of samurai swords, vases and other decorative items from Tang era China, and even doll collections also are considered. The panel may not have a very important sounding name, but they do wield considerable influence over particular tax cases. Any time a work of art worth more than $50,000 changes hand, is donated to charity or gifted, the government wants to know the true value of the property.
WORKINGS AND OUTCOME OF THE PANELS
The Art Advisory Panel was first formed in 1968 and the members meet up to two times a year. There are currently two subspecialty areas or two independent Advisory Panels that evaluate different types of art. The meetings are closed to the public so as to protect the identity of taxpayers, tax returns and other related information. It is unknown what percentage the Panel increased (or perhaps even decreased) the value of the art passing under its gaze, since that information is protected. If a donor donates a piece of art to a museum or gallery, he/she would like to have a high value attached to it. If the donor sells it or it transfers via an estate transfer the parties would like a lower value. The Panel helps to garner voluntary compliance from taxpayers and helps to insure accuracy and objectivity of all related documentation to the government.
The IRS requires the taxpayer to submit documents in regards to the item regarding such things as the condition of the item, appraised value, acquisition date and photographs. Every year the IRS releases a report with various statistics regarding such issues as the aggregate value of all items evaluated, the number of items evaluated and so on. In 2014 the panel recommended accepting 38 percent of the taxpayer submitted evaluations; in 2013 the panel accepted 51 percent of the taxpayer evaluations. To insure that no individual panel member recognizes a particular collection, the works of art are discussed by artist in alphabetical order or, in the case of decorative items, by object types. The IRS treats the recommendations of the Panel as advisory and is not bound by its recommendations, although it often does adopt the recommended value. Courts also often adopt the recommendation of the Panel. Perhaps the best part of this obscure group is that a taxpayer may request a review of the item tax returns prior to filing, which can then be used in the tax return in issue. The review costs $2,500 for up to three items, with each additional item costing $250.
Be sure to contact an experienced estate plan attorney for tailored guidance on passing along complex or unique assets to heirs.