Art Donations the Next Target for Tighter Rules?

The L.A. Times reports based on an analysis it conducted that inflated valuations of donated art are probably costing the federal government millions of dollars in tax revenues.  It cited both a 2006 Treasury Inspector General for Tax Administration (TIGTA) report and recent federal raids on thirteen locations in California to seize art objects.  The report noted that in a single recent year the IRS Office of Art Appraisal Services recommended $62 million in adjustments to the values of artwork with a claimed value of nearly $218 million, while over five years it had recommended over $341 million in adjustments on nearly $954 million in claimed value artwork.  This adjustments were both to overvalued charitable donations and undervalued estate or gift assets.  The report also noted that it appeared only a few thousand returns each year claim art donations valued at $20,000 or more.

The federal raids involved four Southern California museums: Los Angeles County Museum of Art, the Pacific Asia Museum in Pasadena, the Bowers Museum of Cultural Art in Santa Ana, and the Mingei International Museum in San Diego.  The L.A. Times article reports that the federal government seized more than 10,750 objects in January as part of an investigation into the donation of overvalued Asian and Native American artifacts.  While responsibility for valuing donated art lies with the donor, not the recipient museum, the U.S. attorney’s office in Los Angeles is investigating whether museum officials may have knowing accepted donations of overvalued art and so aided the overvaluation scheme.

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