Appraising Works of Art for Tax Purposes

Ralph E. Lerner’s “Appraising Works of Art for Tax Purposes”

Summary: 2011, Ralph E. Lerner discusses the importance of correctly evaluating a work of art for tax purposes, including gifts, donations, and estate ownership.

Excerpt: As important as the concept of fair market value is for tax purposes, there is no simple rule or answer. Although, as discussed below, the Internal Revenue Service (IRS) has by regulation attempted to create rules of valuation, those rules are not workable in all situations and are most difficult to apply when it comes to unique items of tangible personal property. The difficulty is that the determination of fair market value of a work of art is in large part subjective, that is, the opinion of the person making the appraisal. Since it is the taxpayer who bears the burden of proof, proving the value of a work of art short of litigation can be difficult once the IRS takes a contrary opinion. The IRS, being a large government agency, likes to have the determination of fair market value based on a sale of similar property close in proximity in time to the valuation date. When dealing with a unique work of art this determination is rarely possible. The best approach is to know and understand what the IRS wants and choose the best possible appraiser to furnish the opinion that will meet the requirements of the IRS.