On March 5, ASA sent a letter to the IRS Art Advisory Panel requesting a meeting to discuss concerns regarding a June 2009 policy directive that appraisals submitted to the Panel for review include images of comparable sales – even when those sales are made by art dealers and other private parties who often are unwilling to provide photographs or even details about the items sold.  The request, part of the Panel’s “Preferred Object Identification Format for Art Valued Over $20,000”, raises significant questions about the potential negative impact the absence of images — sought in good faith but unobtainable — could have on the Panel’s review of an appraisal submitted as part of a taxpayer’s claimed charitable deduction.  ASA seeks clarification on several points raised in the “Preferred Object Identification”:

• The “Preferred Object Identification” document contains ambiguity, saying both that the Panel acknowledges “complete information will not be readily available in every case,” but goes on to state that “the validity of the appraiser’s valuation is enhanced and the IRS’s appraisal review facilitated by complete and accurate information.”  How these two statements should be interpreted and applied to the request for images is unclear.
• The potential impact that the absence of images could have is unknown.  While ASA is aware of at least one instance where the absence of images has been cited as part of the basis for rejecting an appraisal, the weight afforded to the presence or absence of images has not been established.  Will the absence of images act as an automatic disqualifier?  Would it cause the Panel to question the appraisal’s validity, and to what extent?  Would the absence of images cause delays in review or, possibly, that the appraisal is sent back to the appraiser for further information? 
• ASA also wonders whether the Panel fully considered the difficulty of obtaining images in every circumstance.  Dealers and private parties are very reluctant to provide images of artworks they have purchased, sold, or brokered for a number of reasons, including privacy concerns.  This could lead appraisers to rely on less relevant comparables simply to fulfill the Panel’s image request and distort the conclusion of value.  Reliance on lesser comparables could also have a chilling effect on donative behavior, as taxpayers are less likely to donate if they believe less than full value will be established simply to meet the images requirement.  This would only frustrate the intent of the Tax Code as it relates to charitable contributions, Estate tax valuation, and other tax purposes.
• Finally, the process used to develop and release the “Preferred Object Identification” document is questionable.  Rather than undertake a formal notice-and-comment rulemaking proceeding, the Panel instead relied on informal conversations with a small sampling of stakeholders before it released a final document.  This raises concerns as there is no formal record supporting the Panel’s requests, nor was the entire community of potential stakeholders given the chance to voice concerns with the “Preferred Object Identification” document.  ASA believes that, had the Panel opted for a formal rulemaking, the concerns raised in our letter could have been properly addressed as the document was being developed. 

 ASA hopes to set a meeting with the Panel and the Appeals Division in the near future, and will provide updates as warranted.  To read the entire letter sent by ASA to the Panel and the Appeals Division, click here.