The IRS warns taxpayers to watch for promotions involving exaggerated art donation deductions that can target high-income filers and offers special tips for people to use to avoid getting caught in a scheme.

There are ways for taxpayers to properly claim donations of art. However, some unscrupulous promoters may use direct solicitation to promise values of art that are too good to be true. These promoters persuade taxpayers, usually high-income taxpayers, to purchase the art, wait to donate the art, and then take an incorrect deduction for the art donated. As part of a larger effort to increase compliance work on high-income individuals and corporations, and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.

"Creativity in art is a beautiful thing, but aggressive creativity in art donation deductions can paint a bad picture for people pulled into these schemes," said IRS Commissioner Danny Werfel. "This is another example where people should be careful when it comes to aggressive marketing and promotions. There are legitimate ways to claim an art donation, but taxpayers should be careful to understand the rules and watch out for inflated values or questionable appraisals. Beauty is not always in the eye of the beholder when it comes to tax deductions of art."

The IRS is using a variety of compliance tools to combat abusive art donations through audits of tax returns and civil penalty investigations. The IRS reminds taxpayers, including high-income filers who may be targets of these schemes, to watch out for aggressive promotions. In addition, following Inflation Reduction Act funding, the IRS is focused on increasing compliance efforts on high-income and high-wealth individuals to ensure filers pay the right amount of tax owed.

How It Works

Some people (called promoters) try to get others to buy different kinds of art, often saying it's at a "special" price. This price might also cover extra services like storing, moving, and managing the art's appraisal and donation. The promoter tells buyers that the art is actually worth a lot more than they're paying for it.

These plans are set up to get buyers to donate the art after keeping it for at least a year and then take a tax break for a much higher value than what they paid. Promoters might advise buyers to donate art every year and let them buy enough art to ensure a certain amount can be deducted from their taxes. They might even set up donations to specific charities.

The Red Flags

You should be careful when buying several pieces of art from the same artist, especially if their artwork does not have value in the regular market beyond what the promoter is advertising.

A warning sign in this plan is that promoters might suggest specific people to evaluate the art’s worth. An evaluation that goes along with this plan often doesn’t properly describe the art and might not talk about important value points like how rare it is, its age, quality, condition, the reputation of the artist, the price paid, and how much was bought.

Taxpayers must remember that they are always responsible for making sure the information on their tax return is correct. Being part of an illegal plan to avoid paying taxes can lead to having to pay back the owed taxes plus extra fees and interest, and possibly even facing fines and jail time. Charities also need to make sure they are not knowingly supporting these plans.

Property Claiming an Art Donation

If you want to correctly claim a tax deduction for donating art to charity, you need to keep certain records to prove:

• The name and address of the charity that got the art.

• The date and place where you gave the art.

• A detailed description of the art you donated.

These details are needed to correctly claim a deduction for your charitable donation. There are also extra steps based on how much you’re claiming the donated art is worth:

• If the claimed value is $250 or more, you need to get a written acknowledgment from the charity when you make the donation. You need to have this document by the earlier of the date you file your tax return for that year, or the due date for filing, including any extensions.

• If the claimed value is more than $500 but not over $5,000, you also need to fill out Form 8283, Noncash Charitable Contribution Section A, and attach it to your tax return.

• If the claimed value is more than $5,000, you need to fill out Form 8283, Section B, and get signatures from a qualified appraiser and the charity. You also need to get a qualified written appraisal of the donated art.

• If the claimed value is $20,000 or more, you need to do all the above, plus attach a full copy of the qualified appraisal to your return. You should also have a high-quality photo or digital image of the item and provide it if requested.

See Publication 561, Determining the Value of Donated Property, for requirements of a qualified written appraisal.

Need Help?

If you have questions or concerns about claiming an art donation, please give me a call.

Tip: The IRS has a team of professionally trained Appraisers in Art Appraisal Services who provide assistance and advice to the IRS and taxpayers on valuation questions in connection with personal property and works of art.