[Ancientartifacts] Overvalued Art Appraisals

[Ancientartifacts] Overvalued Art Appraisals
Inflated art appraisals cost U.S. government untold millions
http://tinyurl.com/yvqy84

An alleged tax-fraud scheme involving donations of overvalued art to four local museums is part of a larger, unchecked problem with inflated art appraisals that has cost the federal government untold millions, a Times analysis has found.

Each year, the Internal Revenue Service audits donations claimed on only a handful of the 100,000 or more tax returns that allow art donors to reap nearly $1 billion in tax write-offs. Half of the donations checked over the last 20 years had been appraised at nearly double their actual value.

These IRS reviews caught $183 million in exaggerated claims over the last two decades. But that probably represents a small fraction of the total problem, according to a more detailed 2006 study by the agency's inspector general.

In recent years, the IRS has reduced even further the number of appraisals it checks, part of a broader decline in the number of tax returns audited. If that smaller sample is any indication, overvaluations appear to be getting worse.

In 2004, for instance, the IRS' appraisers checked only seven of the 108,554 tax returns with donations of art. They found that more than a third of the 184 objects claimed on those returns were overvalued -- on average more than three times their true worth.

"It totally blows me away," said Ralph Lerner, a tax attorney in New York who represents many art donors. "I didn't know there was that much abuse."

The issue was highlighted in January, when federal agents raided four Southern California museums while investigating an alleged tax fraud scheme involving the donation of overvalued Asian and Native American artifacs.

Since the raids, federal agents have seized more than 10,750 objects from the Los Angeles County Museum of Art, the Pacific Asia Museum in Pasadena, the Bowers Museum of Cultural Art in Santa Ana, the Mingei International Museum in San Diego and nine other locations in California and Chicago, authorities say.

It is appraisers, not museums, who determine the value of art for donors. But the U.S. attorney's office in Los Angeles is investigating whether museum officials furthered the scheme by knowingly accepting donations of overvalued art from suspect dealers and collectors over a decade, according to affidavits filed in January.

The allegations mirror past tax fraud scandals in which museums such as LACMA, the Smithsonian Institution and the J. Paul Getty Museum accepted donations of art whose value was inflated.

The federal government has long sought to balance incentives for art donors with the risks of tax fraud. Some lawmakers are now saying that balance should be reconsidered in light of possibly widespread fraud.

"It may be that some donors submit inflated appraisals because they know they probably won't get caught," said Sen. Charles Grassley (R-Iowa), ranking member of the Senate Finance Committee, which is considering legislation that would require additional scrutiny of appraisals.

Dave WelshUnidroit-L Listowner
http://groups.yahoo.com/group/Unidroit-Ldwelsh46@cox.net

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