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Sunday, April 02, 2006


Art is in the eye of the beholder, but how to value it for tax purposes? The valuation of art has significance for income tax charitable deductions, gift taxes on gifts, and estate tax when a decedent passes away while owning art.

The IRS imposes various appraisal requirements on taxpayers in different circumstances. But in an audit situation, how will the IRS do its own valuation?

In regard to an item with a value of $20,000 or more, the auditing agent must refer the valuation to the Art Advisory Panel. This is a panel of about 20 art experts, including curators, dealers and auction house representatives, who meet in Washington several times a year to review art appraisals. The Panel's conclusion becomes the official position of the Service on valuation.

If a taxpayer wants to avoid a future dispute with the IRS, or simply wants certainty in tax consequences, he or she can seek a ruling on the value of art or collectibles, but only if certain criteria are met. The requirements are:

1. The ruling request must be made AFTER the property is transferred;
2. The taxpayer must first obtain a qualified appraisal;
3. At least one of the items transferred must have a value of at least $50,000; and
4. A copy of Form 8283 and the appraisal must be attached to the ruling request.

The fee for an advance determination is $2,500 for the first three items and $250 for each additional item. Once the advance ruling is given, it is binding on the IRS.

For more information, see Practical Planning Strategies for Art and Collectibles, D.T. Leibell and D.L. Daniels, 33 Estate Planning, No. 3, 27 (March 2006).

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