Thursday March 28, 2024

4.1.5 Valuation of Art

Valuation of Art

Qualified Appraisal:  Noncash charitable contributions in excess of $500 require filing a Form 8283.

Appraiser and Valuation Rules:  Property valued at over $5,000 that is not publicly traded on a securities exchange requires a qualified appraisal.

Artwork Over $20,000 in Value:  If a deduction is claimed for a gift of artwork and the value is greater than $20,000, the complete signed appraisal must be submitted with the Form 8283.

Statement of Value Option:  If art with an appraised value of $50,000 or more has been contributed to a charity, it is permissible to obtain a "Statement of Value" from the IRS.

IRS Art Advisory Panel:  Periodically, the IRS Art Advisory Panel meets and reviews the valuation of items reported on income tax, gift tax and estate tax returns.

Qualified Appraisal


Noncash charitable contributions in excess of $500 require filing a Form 8283. Part A of 8283 includes the description of the property. However, if the value of the property exceeds $5,000 an appraisal is required. The appraisal must be by a qualified person who "holds himself or herself out to the public" as an art appraiser.

The art appraiser must state the date of the appraisal, the appraisal was done for income tax purposes and the appraisal must disclose the methodology used in deriving the property value. Reg. 1.170A-13(c)(3). The appraisal must have been performed no more than 60 days prior to the gift and no later than the due date of the donor's tax return (including extensions).

Appraiser and Valuation Rules


Property valued at over $5,000 that is not publicly traded on a securities exchange requires a qualified appraisal. There are specific requirements for the appraiser and substantial potential accuracy-related penalties. The appraiser will be qualified if he or she has an appraisal designation from a recognized organization, has otherwise met comparable education experience requirements, regularly performs and is paid for appraisals, has verifiable education and experience with the type of property appraised, has not been prohibited from practicing before the IRS and has not been excluded by Treasury regulations from serving as an appraiser. Sec. 170(f)(11)(E)(ii).

On returns filed after February 16, 2007 for gifts of art, the appraiser must fulfill three requirements. He or she must have completed "college or professional-level coursework" in art, must have two years of experience in buying, selling or valuing the type of gifted art and must thoroughly describe in the appraisal his or her education and qualifying experience.

The penalties for incorrect appraisals are the greater of $1,000 or 10% of the amount of the understatement attributable to the substantial or gross valuation misstatement, with a cap of 125% of the appraiser's gross income from the appraisal. Sec. 6695A(b). The IRS may discipline appraisers after notice and a hearing. Disciplinary action may include suspending or barring an appraiser from preparing or presenting appraisals to the IRS.

Accuracy related penalties are applicable with specific floors. The substantial valuation misstatement floor is 150%. Sec. 6662(e)(1). The penalty for a substantial valuation misstatement is 20% of the underpayment. A gross valuation misstatement is 200% of correct value. Sec. 6662(e)(2). The penalty on a gross valuation misstatement is 40% of the underpayment. There is an exception for underpayments of $5,000 or less and a reasonable cause exception to the accuracy-related penalty for substantial valuation misstatements, but it does not apply in the case of gross valuation misstatements.

Artwork Over $20,000 in Value


Gifts of artwork are also subject to unique substantiation requirements. If a donor who is not the creator of the art wishes to claim a deduction for a gift of art, and the value is greater than $20,000, the donor must submit a complete signed appraisal with Form 8283. In addition, the donor must provide either an 8" by 10" color photo or a 4" by 5" color transparency of the art. See Instructions for Form 8283. As is the general rule with noncash gifts valued at more than $5,000, a qualified appraisal is required.

Statement of Value Option


If art with an appraised value of $50,000 or more has been contributed to a charity, it is permissible to obtain a "Statement of Value" from the IRS. This "Statement of Value" is available only after the art has been transferred. Thus, since many donors desire to know the deduction value prior to the gift, it may be preferable to rely on a valuation by an independent appraiser. There is a user fee of $2,500 for obtaining a "Statement of Value" from the Service. Rev. Proc. 96-15. Notice 95-1. See also Ann. 2001-22.

IRS Art Advisory Panel


Periodically, the IRS Art Advisory Panel meets and reviews the valuation of items reported on income tax, gift tax and estate tax returns. With respect to the charitable deductions on income tax returns, the Art Advisory Panel typically reduces approximately one-third of the valuations.

Conversely, on the gift tax returns and the estate tax returns, the Art Advisory Panel generally increases valuation on approximately one-third of the returns. The Art Advisory Panel reports may be obtained from: Director, Disclosure Operations Division, Attn: FOI Reading Room, Box 388, Benjamin Franklin Station, Washington, DC 20224.

Case Studies on Valuation of Art

Getting Back to the "Art of the Matter," Part 4:   Paulo Frambini, 45, is a talented artist and a self-proclaimed leader of the art purist movement. He lives, breathes and eats art history and culture. Paulo refuses to be characterized as any one particular type of artist. Accordingly, Paulo's artistic creations are very diverse and varied.


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