In early September, the IRS made it clear that the Inflation Reduction Act funding would allow the agency to look closer at high-income earners and complicated businesses to find those who may not comply with tax laws. Amid these increased reviews, the IRS has uncovered questionable art donation deduction schemes.
The promotors of these schemes target high-income earners who are more likely to have the resources to invest in art. Works of art are offered for purchase at a deep discount. The taxpayer is encouraged to hold the art for a year before donating it to a charity. The art scheme program sometimes arranges for specific charities to take the art donation. The taxpayer then takes a deduction for the purported fair market value of the art, which is significantly more than the taxpayer paid for it.
The IRS reported that these schemes can involve art valued at millions of dollars. The agency is already investigating such programs and auditing taxpayers involved.
The IRS asks taxpayers to watch for certain red flags regarding programs promoting the art donation deduction.
- The taxpayer may be encouraged to buy multiple works of art by the same artist.
- The art donation deduction promoters use appraisers they have lined up for the program.
- The art appraisal may lack sufficient detail, such as the artwork’s rarity, age, and condition or the artist’s reputation.
It’s important to remember that individuals and businesses are always responsible for the accuracy of their tax returns. If you believe you are involved in an illegitimate art donation deduction scheme, consider contacting a qualified tax professional for assistance.
