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How much is a work of art worth (on a tax return)?

On one level, the question of an art object’s worth is a philosophical one. But the Internal Revenue Service is not generally known for its aesthetic interests. When the IRS takes an interest in the transfer of a painting, it is probably because the agency has a stake in determining its monetary value.

The IRS might do this, for example, because it questions whether a tax deduction taken for the transfer of a given paining is reasonably accurate.

The IRS does not make valuation decisions in a vacuum, though. It enlists the advice of an advisory panel drawn from prominent figures in the art world.

The prestigious panel carries considerable clout. Though technically only advisory in nature, its pronouncements are seldom questioned, much less overruled.

The panel is hardly a clandestine one, as the identities of its members are made public. But the group has considerable discretion in how it carries out its work.

The threshold level for an art object to be considered by the panel has gone up markedly in recent years. It is now $50,000. But many works are of course worth much more. Indeed, the average value of the objects vetted last year was $784,000.

Understandably, different taxpayers have different interests when it comes to these deliberations. Charitable donors tend to have a preference for larger values because that is better for maximizing the charitable deduction. Executors of estates, by contrast, are more inclined to like low values in order to minimize estate tax obligations.

In short, the IRS art panel’s task is framed by questions of money, not aesthetics. It is not “art for art’s sake.” Its members are all well versed in the realm of aesthetics, but the IRS has convened them for a much more prosaic purpose.

Source: The Wall Street Journal, "The Art (Tax) Police," Laura Saunders, September 20, 2013

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