The IRS Knows More about Art than You Think
In an effort to reduce their estate tax burdens, many wealthy families are tempted to undervalue their prized collections, such as art.
The IRS, however, makes its own valuations.
However, there is only so much wiggle room available to reduce the value of estates subject to such taxes. Liquid assets have a value that is easy to determine. If an estate has $10 million in securities, then there is only so much that can be done to limit estate taxes. On the other hand, some assets have values that are more difficult to determine.
For instance, many wealthy families have art and other prized collectibles. The true value of these tangible assets cannot be easily ascertained until the items are put up for auction and sold. For estate tax purposes these items must be appraised.
Not surprisingly, some people attempt to choose appraisers who will give a low value to reduce the estate tax on the items. In the end, as the New York Times explains in an article entitled "Revaluing Family Treasures for the Taxman," that is not always the best idea.
The IRS has its own process for appraising art and other high-ticket items.
The Art Advisory Panel is a group of experts employed by the IRS. Every year the panel reviews hundreds of items to determine their value and make sure taxpayers are not undervaluing them for estate tax purposes. In other words, if something is undervalued by an appraiser, it is not a good idea to assume the IRS will not find out about it. Of course, the IRS' valuation can be challenged, but that does require a long and lengthy process.
Consult with an estate planning attorney to help ensure your valuable collections are properly accounted for.
Reference: New York Times (Feb. 6, 2016) "Revaluing Family Treasures for the Taxman"
Suggested Key Words: Estate Tax, Art, Valuation