IRS Scrutinizing Art Donations

By Kenneth H. Bridges, CPA, PFS November 2023

Could Art Donations Be the Next Syndicated Conservation Easements?

Anytime we are dealing with a charitable donation of something other than cash or publicly-traded stock, valuation becomes a major issue.  For the past two decades, the IRS has been pursuing syndicated conservation easements (SCEs), where highest-and-best-use value of land is the principal issue.  Congress has essentially shut SCEs down for donations after December 29, 2022 (with a new rule limiting deduction to 2.5x amount invested). 

As SCEs for earlier years continue to work their way through IRS examination, appeal, and Tax Court, the IRS has now become aware of promoters suggesting that high-income taxpayers purchase art at a “discount”, hold it for a year, and then donate it to a museum or other charitable organization at an appraised value substantially higher than the amount paid.

Understandably, the IRS is skeptical of such purchases at a “discount” and/or rapid increases in value, and has recently announced (IR 2023-185) that it is conducting promoter investigations and taxpayer audits involving art donations.

Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.

This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice.  The article provides only a very general summary of complex rules.  For advice on how these rules may apply to your specific situation, contact a professional tax advisor.