When it comes to art valuations, however, you should know that the IRS certainly will not take your word for it, or even the word of a decent appraiser, until they get their own expert opinion from their own experts: the Art Advisory Panel. A fair question to ask, then, is how fair is the Art Advisory Panel?
The question of the Panel and fairness was addressed in a recent Forbes article titled "Is Art Advisory Panel Giving Taxpayers A Fair Shake?" Here's how the competing interests play out. First, if you are a taxpayer giving art to a loved one or bequeathing it as a part of your estate, then you likely want a lower valuation. Why? Because you want a lower tax bill. On the other hand, if you are selling that very same piece of art, then you will want to command the absolute top dollar. Likewise, a body in charge of taxation is pretty much always going to be interested in a high valuation because it triggers a higher tax bill.
So, statistically, how much of taxpayer appraisals does the government Panel accept? Would you believe only 51%? In addition, the Panel "adjusts" the other 49%, and of that adjusted percentage generates a net 47% increase on items in estate and gift appraisals.
Of whom are you more cynical, the IRS or the taxpayer?
The take-away is that any gift of art is something ought be fully considered with your valuation ducks in a row. Remember: there's nothing an expert likes better than disagreeing with another expert - and the IRS keeps them on staff.
Reference: Forbes (February 6, 2013) "Is Art Advisory Panel Giving Taxpayers A Fair Shake?"
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