Attention taxpayers…looking to reduce your tax bill by donating art? Be cautious! While there are legitimate ways to claim donations of artwork, the IRS is warning taxpayers of a rise in art donation schemes. Here are the warning signs.

What’s the scam?

Scammers are encouraging high earners to buy art, often at a discounted price, wait at least one year before donating it, and then claim a false deduction for the donation.

Not only will the scammer promise the art is worth significantly more than the purchase price, but they might also offer additional services, like storage, shipping and arranging the appraisal and donation of the art.

Red flags to watch out for

The IRS outlined specific indicators to be cautious of in relation to this tax scam:

• Being urged to purchase multiple pieces by a single artist with minimal or negligible market worth beyond what the promoter is promoting.
• Promoters arranging designated appraisers for taxpayers to utilize.
• Promoters not having adequate descriptions of the art (missing info regarding rarity, age, quality, condition, stature of the artist, price paid, and quantity purchased)

How to claim a legitimate art donation

To claim a charitable contribution deduction for an art donation, you must keep records to verify three things:

1. The name and address of the charitable organization that accepted the art.
2. The date and place of the contribution.
3. A thorough description of the art that was donated.

Further conditions apply based on the claimed deduction's value:

$250 or more: The taxpayer must acquire a written acknowledgment of the contribution from the charitable organization, received on or before the earlier of their tax return's filing date for the taxable year of the contribution or the due date, including extensions, for filing the return.

More than $500 but not exceeding $5,000: The taxpayer must complete Section A of Form 8283, Noncash Charitable Contribution, and attach it to their tax return.

More than $5,000: The taxpayer is required to complete Form 8283, Section B, which includes obtaining signatures from a qualified appraiser and the donee. Moreover, they must procure a qualified written appraisal of the donated property.

$20,000 or more: In this case, the taxpayer must fulfill all the previous conditions and attach a comprehensive copy of the qualified appraisal to their return. They should also possess a high-resolution photograph or digital image of the object and provide it if requested.

Questions? Wondering if you’re dealing with a scammer? We can help.