How About Some Statistics from the IRS Art Advisory Panel

I am working from the 2007 report (the 2008 annual report has not been released), but I thought I would share some of the information from the annual Art Advisory Panel report. Remember, these are only the items that get tot he Art Review Panel, others are reviewed by the Art Appraisal Services team, settled etc.

"The Art Advisory Panel assists the IRS by reviewing and evaluating the acceptability of property appraisals submitted by taxpayers in support of fair market value claims on works of art involved in Federal Income, Estate and Gift taxes in accordance with the Internal Revenue Code."

It is interesting to note the dollar size of the donation/estate/gift items being reviewed. The more appraisers know about these figures and the IRS process the more attention can be paid to the particular assignments and documentation in the event of a review. I was surprised to see The Art Review Panel only processed 131 cases in 2007.

So lets break this down, and we will get a better idea of the type of appraisals being looked at.

• In 2007 131 cases with 1002 items were reviewed by the Art Advisory Panel
• 120 of the cases were for estate and gift property with 885 items of property
  
• 11 of the cases were for charitable contributions with 117 items property (very few, this surprises me, I would have expected more charitable donation reviews)
  
• Total taxpayer valuation was $278,939,299.00
• The average charitable donation claim was $280,464.00
• The average estate/gift item was $280,464.00
• The panel recommended adjustments of $92,51,603.00
• On charitable donations adjusted items the panel recommended reductions of 47% in value
  
• On estate/gift property adjusted items the panel recommended an increase of 58%
  
• Of appraisals received and reviewed, the panel accepted 36% of the valuation conclusions
  
• Adjustments were recommended for 61% of the appraisals
• 3% were sent back to staff for additional review

If your report is selected for audit by the Art Review Panel, you have a 61% chance that your value conclusion will be challenged. If that is the case, make sure your workfile is well documented, the proper market was selected, the comps are acceptable and adjustments are well explained.

AS we know, the numbers show is the valuation figures must be rather large in order for the Art Review Panel to become involved. The above statistics bear that out, with an average item being review in the $280,000.00 range. The property must have a value of over $20,000.00 to be first reviewed by the IRS Art Appraisal Service and then referred for a further audit by the Art Review Panel which is made up of industry experts. The decision of the panel becomes the official IRS position on the tax matter, although there are settlement and appeals procedures available to the taxpayer.

A few more interesting statistics. The following is the percentage of responses over the past few years which were challenged, 2004, 20%, 2005, 36%, 2006, 56% and 2007, 21%. The percentage of responses agreed to at the appeal or examination review, 2004, 96%, 2005, 97%, 2006, 92% and 2007, 94%. What these numbers tell me is over the past few years, when taxpayers appeal the process over 90% of the time the IRS comes out on top. Not very surprising. The rest, I assume continue appeals or go to court.

I found the Art Advisory Panel numbers interesting, and thought I would share with fellow appraisers.