Magazine article The CPA Journal

Valuation of Art Objects for Estate Tax Purposes

Magazine article The CPA Journal

Valuation of Art Objects for Estate Tax Purposes

Article excerpt

The valuation of art for estate tax purposes presents unique problems and challenges. The unpredictable nature of the art market, with changing tastes and styles, makes art prices volatile. The art world boomed during the 1970s and 1980s, when contemporary works as well as Impressionists were in favor. Today, record-setting prices may be set for anything from a Van Gogh painting to Jacqueline Onassis's collection.

Despite fluctuation in the retail art market, the responsibility for placing a fair market value on artworks for estate tax purposes remains with the taxpayer and the IRS. The process may be somewhat subjective, but the end result must be an equitable value.

Background

Property in general-real or personal, tangible or intangible-should be valued at its fair market value at the date of death, or at the alternate valuation date of six months after the decedent's death as provided by the IRC. Additionally, any interest such as joint or community property must be valued and included in the gross estate. The regulations define fair market value as the price at which "property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts."

Because the definitional guidelines provide little assistance in arriving at actual dollar determinations, the IRS has issued additional guidance to assist in the valuation of art for estate tax purposes.

Administrative Stance on Art Objects

Even though art objects, including paintings, sculptures, tapestries, silverware, and other artifacts, are subject to the general valuation rules for estate tax purposes, the valuation process and documentation required depend upon the value of the articles. Specifically, an art object valued at no more than $100 may be grouped with other articles on a room-byroom appraisal, with a separate value given for each item named. An executor is also allowed to submit an aggregate value as appraised by a competent appraiser or dealer.

For articles with artistic or intrinsic value of more than $3,000 or a collection of similar articles valued at more than $10,000, the appraisal must be made under oath by an expert who must also attach a statement of qualifications.

When an art object has a value in excess of $20,000, the valuation is automatically reviewed by the Art Valuation Group (National Office) of the Engineering and Valuation Branch of the IRS for possible audit. When the value is greater than $50,000 and substantiated valuation is desired, the IRS provides a procedure for obtaining this secure art value.

Pursuant to Revenue Procedure 66-49, the IRS would not approve valuations or appraisals prior to the actual filing of the associated tax return and would not otherwise issue any advance rulings approving or disapproving appraisals. Naturally, this led to uncertainty and rendered impossible a taxpayer's prior determination of the valuation of art property. To address these concerns, and in response to legislation enacted in 1993, the IRS promulgated Revenue Procedure 96-15, which modified Revenue Procedure 6649 by establishing a procedure for the issuance of a Statement of Value. A taxpayer could rely upon this to substantiate the value of art for income, estate, or gift tax purposes.

Revenue Procedure 96-15 applies only to items of art valued at $50,000 or more that were or will be transferred as charitable contributions, by reason of a decedent's death or inter vivos gift. In addition, under limited circumstances, the IRS may issue the Statement of Value for items appraised at less than $50,000 if the request includes at least one item appraised at $50,000 or more and the IRS determines that such a statement would be in the best interest of efficient tax administration. The IRS may also decline to issue a Statement of Value if it is in the interest of efficient tax administration not to do so. …

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