ART EXPERTS HELP EXPOSE TAX CHEATS

WASHINGTON — The Internal Revenue Service has reported success in using panels of art experts to uncover tax cheats who claim grossly inflated deductions for paintings, sculpture and other objects donated to charitable institutions.

Acting IRS Commissioner James I. Owens has told the House Ways and Means oversight subcommittee that one panel, formed in November, 1980, has helped to virtually eliminate a once-popular abusive tax shelter scheme involving overvaluation of art prints.

The panel went out of business in March, 1985, for lack of cases to review, Owens said.

During the nine years ended in 1985, Owens testified, the IRS art advisory panel of 25 art dealers, museum directors, curators and scholars--who serve without pay--reviewed 1,565 cases of audited tax returns involving donated art works valued at $525 million.

Owens said the panel’s review of the artworks recommended tax adjustments totaling $115 million in exaggerated deductions for art donations or undervalued claims used as the basis for federal estate and gift taxes. Since 1984, he said, adjustments were recommended on 73.5% of the items reviewed.

Owens said the art advisory panel, which was expanded in 1984 to include specialists in pre-Columbian and primitive art and Far Eastern and Asian art, plus tougher penalties and stricter appraisal requirements, had provided “valuable tools to monitor compliance and combat abuse in this area.”

Rep. J.J. Pickle (D-Tex.), the subcommittee chairman, said art valuation “remains an area particularly susceptible to abuse,” and he questioned “whether we have a good overall grip on the valuation situation.”

In 1983, Owens said, taxpayers claimed charitable deductions totaling $37.7 billion, of which $5.8 billion was for non-cash contributions. He said it is unknown how much of the $5.8 billion represented art donations, but the IRS estimates that 20% of taxpayers overstated their charitable contributions.