IRS Warns Taxpayers of Improper Art Donation Deduction Promotions; Highlights Common Red Flags

January 24, 2024

The Internal Revenue Service has recently warned taxpayers to watch for promotions involving exaggerated art donation deductions that can target high-income filers and offered special tips for people to use to avoid getting caught in a scheme.

To keep all ASA appraisers up to date in their appraisal practice, we wanted to be sure that you have seen this important advisory.

If some of this sounds familiar to you, recall the tax court cases you learned in PP204. This is a very similar type of scam and the IRS has now seen enough of these cases to put out this warning to both taxpayers and appraisers.

There are ways for taxpayers to properly claim donations of art. But some unscrupulous promoters may use direct solicitation to promise values of art that are too good to be true. These promoters persuade taxpayers, usually high-income taxpayers, to purchase the art, wait to donate the art and then take an incorrect deduction for the art donated. As part of a larger effort to increase compliance work on high-income individuals and corporations, and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.

As an appraiser, if you are approached for an assignment similar to the pattern identified by the IRS, make sure to ask questions about how long the artwork has been owned by the donor; the cost basis of the artwork; and what is motivating the donative activity. Ultimately, if you are not comfortable with the assignment, make an informed decision to preserve your professional integrity.

Learn more about this topic as reported on their website

Read the complete announcement here.

Disclaimer: The views, opinions or examples included in the linked article are those of the author and do not necessarily reflect an official policy or position of ASA or its members.