The valuation procedures for personal property for purposes of determining tax liability in gift and inheritance cases is generally the same as those used for charitable deduction purposes. However, in the case of antiques and works of fine arts, the issues of the buyer’s premium and blockage discount have to be taken into consideration. Typically, only art works with a value in excess of $20,000 need to be valued by a reputable appraiser. In such cases, the IRC stipulates that the donor or executor should provide the IRS with suitable documentation to support gifts or bequests made involving these works of art. IRS reviews of such appraisals tend to focus on six components: the state of the market for the property; the statement of comparable worth; photographs of the property; cost basis, date and manner of acquisition; provenance; and a detailed description of the property in question.

An “art advisory panel” was established by the IRS in 1968 in order to review submitted appraisals of property to determine if an intelligent assessment of fair market value has been placed upon works of art and antiques. Generally, only those items whose value exceeds $20,000 are reviewed by the panel. The Valuation Division of the IRS also maintains a staff of valuation technicians who review the balance of either contributed, gifted or estate property. They are assisted in this effort by individuals, under contract to the IRS. Once reviewed, a report is issued by either the panel or the Valuation Division. This report will include any changes (up or down) in value and the reasons for these changes.

IRC Sec. 7517 stipulates that the IRS must provide, upon the request of the donor or executor, a written statement explaining any changes in the value of the property suggested by the above reviewing bodies. This statement must be furnished within 45 days of the date of the request or the date of its determination, whichever is later. This was instituted in order to promote the resolution of valuation disputes at the earliest possible time and at the lowest possible level. IRC Sec. 7517 is effective for all transfers made after December 1976.

If no agreement can be reached at the lowest level, the donor or executor may ask for the matter to be reviewed by the Appeals Division. If no resolution at that level is possible the case may ultimately end up at the District Counsel level in preparation for a hearing in Federal Tax Court. Most valuation disputes are resolved well before the Federal Tax Court level as the costs and hazards of litigation become evident to both sides.  To help prevent these issues from happening, you may want to check out online accounting services to help in your valuation and proper accounting of these transactions.