Colin Moynihan reports on a recent decision made by the United States Tax Court on the gap between the estimated and actual value of artwork.
In February, Judge Joseph H. Gale ruled that the expert had most likely placed a “lowball” estimate on that painting and a second work so as to “curry favor” with the owner, an estate facing a potentially large tax bill, and thus win the business of selling the works at auction. His ruling came in a case where the estate challenged a determination by the Internal Revenue Service that the paintings had been valued too low. Sotheby’s said in a statement that the estate is appealing Judge Gale’s decision and that it expects its expert’s valuations to be accepted by a higher court.
The I.R.S. has long viewed the valuations given for artworks in income, estate and gift tax returns as a “potentially high abuse area,” as described in several recent reports. According to annual reports by the Art Advisory Panel of the Commissioner of Internal Revenue, about 58 percent of the 1,840 works that are all worth more than $50,000, from 2011 to 2015 were valued improperly. The data showed that taxpayers tend to underestimate the value of art that was given as gifts or bequeathed and, conversely, tend to overestimate the value of art donated as a charitable contribution.
Posted by Jacqueline Groccia, Associate Editor, Wealth Strategies Journal.