Thursday December 7, 2023

Case of the Week

Wild Bill Enjoys a "Russell" Art Deduction

Case:

Bill Russell grew up on the Great Plains. During his youth, he was a rodeo bull rider and gained fame as "Wild Bill" for his daring exploits. Bill was an artist at heart and soon decided to move on to artistic pursuits. He traveled throughout the United States and Europe and studied some of the great modern and classical artists. In France, he was moved by the delicate works of Impressionist painters Monet and Manet and the bold colors and brush strokes of Van Gogh. Upon return to his beloved Great Plains of the West, Bill combined the subtlety of the Impressionists, the colors of Van Gogh and his own unique skills. His Impressionist western landscapes, paintings of cowboys and depictions of life on the ranch became treasured by art collectors nationwide.

Bill was rapidly gaining a national reputation. His western Impressionist art exhibits would draw art lovers from all around the world. He was selling his paintings for $75,000 or more and, as a result, he was facing a much higher income tax bill.

One day, Bill received a call from Wolf Point, Montana. A local attorney told him that a distant relative had passed away and that Bill had inherited a sketch drawing created many years ago. Bill asked about the sketch and was told that it was created by his great-great-great uncle Charles Russell. While it is a small sketch, the attorney thought that it might be quite valuable.

Question:

After inheriting the Charles Russell sketch, Bill admired it for a year. Then, the Cowboy Western Museum called and suggested that the sketch would be a great addition to their Charles Russell collection. Bill called his CPA, Helen, and asked about donating the painting. He said, "Maybe I could receive a large tax deduction and save taxes. What do I need to do to give this sketch to the museum?"

Solution:

Helen explained to Bill the benefits of giving his uncle's sketch drawing to charity. With a gift of inherited art to a museum for a related use gift, Bill could receive a deduction equal to the artwork's fair market value. Helen determines that Bill would be treated as an art collector for purposes of the inherited sketch. Bill did some research on the value of the sketch and determined it may be worth more than $100,000. Since this is a valuable drawing worth potentially over $100,000, Form 8283 would be filed with the IRS to substantiate Bill's gift. Part A of Form 8283 includes the description of the property. Because the gifted property exceeds $5,000, an appraisal would be required. An individual must earn "an appraisal designation from a recognized professional appraiser organization" or meet education and experience requirements for the type of property being appraised to be a qualified appraiser. Sec. 170(f)(11)(E).

Published August 18, 2023

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