Do you have any valuable art in the family? If yes, then you need to be more than familiar with the Art Advisory Panel. Its opinion is potentially your burden. When it comes to taxation, no one likes surprises.
The Art Advisory Panel is, in the history of the tax code, a fairly new invention dating back to 1968. Despite its relatively recent existence, the influence of the Art Advisory Panel has only increased over the intervening decades as the value of art itself has skyrocketed.
Practically speaking, the value of art is ambiguous at best, and yet it is also very real. Just because you regard a painting as “priceless,” some potential purchaser just might give you, your estate, or your heirs a very definite and taxable price for it. The Art Advisory Panel exists to double-check your numbers on the real-world taxable value of the artwork for the purposes of the assessment of taxes or even charitable deductions. Consequently, the Panel truly is the tax police of the art world, scrutinizing any piece of art assigned a value of more than $50,000.
Happily, the Panel finds in favor of the taxpayer about half of the time. Unhappily, those taxpayers on the losing end find themselves stuck with a larger than anticipated tax bill and, perhaps, penalties.
When it comes to the valuation of art, it is worth your time to get a qualified appraisal so you are well-prepared if the IRS calls in the art (tax) police.
Reference: The Wall Street Journal (September 20, 2013) “The Art (Tax) Police”