Art Deduction Scams Targeted in IRS Crackdown on Rich Tax Cheats
Source: Bloomberg Law
April 22, 2024, 4:35 AM EDT
The next step in the IRS’s crackdown on wealthy tax cheats is going after inflated art valuations that produce outsized deductions. The IRS has added improper art write-offs to its annually updated “dirty dozen” list of common scams, spotlighting an uptick in those deductions as tax avoidance.
The increased scrutiny on art donations also stems from the IRS having more resources thanks to the tens of billions in funding from the 2022 tax-and-climate law. Those enforcement efforts also seem to coincide with a global art market slowdown. Global sales fell 4% to $65 billion in 2023, a break from two years of growth, according to a 2024 Art Basel and UBS report.
“The IRS is sending a message out to taxpayers that it’s OK to donate art and appreciated property to charity, but just be careful its only purpose isn’t to avoid tax,” said Megan Brackney, a tax controversy partner at Kostelanetz LLP.
People who donate art can deduct its value from their taxes. But the IRS cautioned in its dirty dozen list that “promoters” sell people discounted art, promise it’s worth more, then encourage them to donate it after holding it for a year. Taxpayers then deduct the inflated valuation from their tax bill. The IRS said in October 2023 it had completed more than 60 audits involving art valuations that produced more than $5 million in additional tax at the time.
Read more: https://news.bloomberglaw.com/daily-tax-report/art-deduction-scams-targeted-in-irs-crackdown-on-rich-tax-cheats
I *literally* just heard this story on my local CBS-affiliate news radio station (that uses Bloomberg business reports).
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