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| Risk & Reward |
The Collector's Conundrum
Mary Lowengard
05/03/2004
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TOP VIEW
Art, antiques, furniture, rarities—for many of us, our collections are the best
reflection of our personal aesthetic. As such, it is often difficult to broach
what will happen to these individualistic and often iconoclastic portfolios when
we are gone. But with careful planning, we can ensure our collections end up
where we want them—with a museum, our children or like-minded collectors—without
being swept away in a torrent of gift or estate taxes. |
Also, the IRS has its own stringent
mechanism for appraising appraisals: the Art Advisory Panel, an oversight body
comprised of 16 to 20 experts drawn from the ranks of galleries and museums. Tax
returns selected for audit, typically those claiming property that exceeds
$20,000 in value, are brought before this panel for review. The panel meets in
Washington, D.C., once or twice a year, reviewing some 250 to 300 items at each
one-day meeting. According to some experts, the IRS has cracked down on
valuations lately because of uneven appraisals—donated items routinely valued at
the high end and gifted ones valued at the low end. Although panel members are
not told whether an item is being gifted or donated, says one former member, “it
was patently obvious when people were [making donations, since they were]
claiming their items were worth five to 10 times what they actually were.”
According to James Maroney, a private art dealer in Vermont, making sure the
appraisal is well documented offers some protection. Still, “the system is so
hopelessly arbitrary I would say do everything you can to avoid it,” he
concludes. In 2002, the panel reviewed 469 items with an aggregate taxpayer
valuation of $100.4 million, on which total adjustments of $46.9 million were
recommended. For items in charitable contribution claims, an average reduction
of 60 percent was recommended. Conversely, for estate and gift appraisals, the
average valuation increase was 88 percent. Inaccurate appraisals are not without
consequence: If an object’s valuation is found to be off by more than 150
percent of its fair market value, an additional 30 percent of the tax
underpayment is assessed. In this circumstance, appraisers may be subject to
sanctions as well.
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