7 ms·

This is not true for assets that change in value and illiquid/non-marketable assets. Example: Rich person buys asset for $10m. 3 years later gets it appraised

This is not true for assets that change in value and illiquid/non-marketable assets. Example: Rich person buys asset for $10m. 3 years later gets it appraised for $75m, knowing full well that no one would actually buy it for that. Rich person then donates the '$75m' asset to charity. Rich person made more money via charity rather than trying to sell the asset for $75m. This is a very common strategy.

MrEfficiency 8y ago
That is the dream. But remember that the IRS doesnt care much about the 90%. They DO care about the 0.1%. Doing something like that is a high risk way of getting audited.
- vinceguidry 8y ago
  There was just an article about how the IRS is doing fewer audits in recent years due to lack of resources and political cover.
  - sehugg 8y ago
    Propublica: After Budget Cuts, the IRS’ Work Against Tax Cheats Is Facing “Collapse” https://www.propublica.org/article/after-budget-cuts-the-irs-work-against-tax-cheats-is-facing-collapse https://www.propublica.org/article/after-budget-cuts-the-irs...
- GFischer 8y ago
  But it's very hard to prove such fraud. If you artificially pump the value of an artist by a few well placed public auctions - the art might have been bought by a front man for the owner, then the IRS doesn't have a leg to stand on, as a "market value" for the artist has been established (my mother worked on auctions for a time and there were a lot of shady schemes to pump up value of collectibles). The 0.1 have access to the very best tax advisors money can buy (and probably some IRS insider info as well).
  - radiantswirl 8y ago
    Finally someone's dropping real talk in this thread. It's so easy to game the system of charitable giving and make it profitable that it's a joke. Art Auction houses (arguably ) exist primarily to aid rich people's tax evasion. Guaranteed minimums on objects sold, "anonymous" sockpuppet buyers artificially bidding up prices, appraisals done by people with no incentive not to inflate prices -- all of these things make tax evasion easy for the .01%. When you're that rich you hire a former IRS agent who quit to work in the private sector. He helps you evade all the tax laws that he once worked to enforce, because he knows them better than anyone. Rich people can inflate the value of their artworks with trivial ease through the auction house system. All they're doing is avoiding taxes.
- Tsubasachan 8y ago
  Its not easy going after the super rich. They can, and do, hire the best and brightest.
- charlesdm 8y ago
  Getting audited is bad, why? The point is: can the IRS make their case and prove that whatever behavior by a taxpayer is not actually sound and proper? If you make a seemingly reasonable decision, even with an ultimate (very) beneficial tax outcome, there is not much that can be challenged if no laws have been broken. Add to that the army of lawyers that on meaningful cases will keep pushing things out forever, and you should have an understanding as to why tax authorities around the world do not like to challenge the very wealthy that much. They often also control companies and assets that employ people, which can be used as leverage in negotiations.
  - deleted 8y ago
    [deleted]
IshKebab 8y ago
But that's just fraud.
- GFischer 8y ago
  Very hard to prove fraud for the IRS, I guess. Nobody's saying these rich people are behaving ethically.
  - deleted 8y ago
    [deleted]
wuliwong 8y ago
Is this something limited to art? What markets commonly have 7.5 times growth in 3 years? Also, it seems that getting an appraisal at a value that nobody would pay seems off to me. What is the appraiser basing the valuation off of if not other recent sales?
- cowkingdeluxe 8y ago
  Not limited to art. It's easy to get a trusted appraiser for the wealthy. It is very difficult for the IRS to challenge. Examples other than art: Company shares, real estate, time in certain contexts. Edit: I'd like to point out GFischer's excellent summary on this https://news.ycombinator.com/item?id=18130720 https://news.ycombinator.com/item?id=18130720
  - TAForObvReasons 8y ago
    Computing too. Epic Games decided to make certain assets for the Paragon game free for use (with a black-box valuation), and it wouldn't be surprising if companies like google put a valuation on open source software that they released and took a deduction. https://www.unrealengine.com/en-US/blog/epic-games-releases-12-million-worth-of-paragon-assets-for-free https://www.unrealengine.com/en-US/blog/epic-games-releases-...
- ohyes 8y ago
  If you ask Trump, real estate
compsciphd 8y ago
Not my experience with donating a car. IRS rules are you don't get an "appraised" (or blue book) value for the car, you get whatever the charity is able to sell the car for or $500 (whichever is more). The only time you might get the blue book value is when the charity is able to use the donation as is for itself (i.e. donate a car to meals on wheels and their volunteer uses the car to deliver the meals). I think a charity would have a hard time justifying an "art" donation as something they are using as is.
- gcb0 8y ago
  your problem is being poor. if you had opted to be born rich, your friend's charity would have bought your car over the appraised value and you would have made a profit! all with tax free dollars all around.
- smelendez 8y ago
  There are specific IRS rules for vehicles. I imagine that's because they depreciate over time.
- cavanasm 8y ago
  They can always say they use the art as decoration for charity events if they need a "use as is" reason for why they accepted the excessive valuation.
- URSpider94 8y ago
  The IRS made specific rules for vehicles because of a massive spate of “cars for xxx” charity donation scams. Basically, you could donate a junker car, the charity (more properly, the charity’s contract car donation service, a few companies did this for a large number of sponsor charities) would get you a massively padded appraisal, and then would crush the car and give the charity $50. You got a fat tax write-off, the charity got $50, and the service got the scrap value of the car, minus $50.
andrewla 8y ago
This is indeed a very common strategy. It is also very commonly caught and detected, and doing so is straightforward. At some point the asset get liquidated. If the appraisal was done in good faith, then the taxpayer has to pay the back taxes without penalties or prejudice. If the appraisal was deliberately manipulated, then there is a strong possibility of criminal charges and fines for evasion. If the article genuinely depreciated in value, then the burden falls on the taxpayer to prove this, and in illiquid markets this is very difficult to establish.
- guelo 8y ago
  The GOP already took care of that for them: I.R.S. Tax Fraud Cases Plummet After Budget Cuts https://news.ycombinator.com/item?id=18115729 https://news.ycombinator.com/item?id=18115729
  - nojvek 8y ago
    The rich got richer and suffocated IRS from being able to touch their $$$$ Something something we are all equal but some are more equal than others.
  - masonic 8y ago
    Look at the charts in your own link, spanning 2007-17. Audit rates were increasing under GWB, then plummeted over the course of the Obama administration into 2017.
    - guelo 8y ago
      The Republican congress got serious about attacking the IRS after the fake IRS Tea Party scandal.
      - sosense 8y ago
        Fake scandal? No, that's re-writing history. Obama suggested the IRS target his enemies, mostly conservative groups, and the IRS did exactly that. The only thing fake about it is the news reports calling the scandal "fake."
prostoalex 8y ago
> gets it appraised for $75m, knowing full well that no one would actually buy it for that This is a very good way to trigger an IRS audit. Contrary to popular perception, those investigators weren't born yesterday. > This is a very common strategy. You are saying this based on what data? Are you a CPA or a tax planner?
- deleted 8y ago
  [deleted]

MrEfficiency 8y ago

That is the dream. But remember that the IRS doesnt care much about the 90%. They DO care about the 0.1%. Doing something like that is a high risk way of getting audited.

vinceguidry 8y ago
There was just an article about how the IRS is doing fewer audits in recent years due to lack of resources and political cover.
- sehugg 8y ago
  Propublica: After Budget Cuts, the IRS’ Work Against Tax Cheats Is Facing “Collapse” https://www.propublica.org/article/after-budget-cuts-the-irs-work-against-tax-cheats-is-facing-collapse https://www.propublica.org/article/after-budget-cuts-the-irs...
GFischer 8y ago
But it's very hard to prove such fraud. If you artificially pump the value of an artist by a few well placed public auctions - the art might have been bought by a front man for the owner, then the IRS doesn't have a leg to stand on, as a "market value" for the artist has been established (my mother worked on auctions for a time and there were a lot of shady schemes to pump up value of collectibles). The 0.1 have access to the very best tax advisors money can buy (and probably some IRS insider info as well).
- radiantswirl 8y ago
  Finally someone's dropping real talk in this thread. It's so easy to game the system of charitable giving and make it profitable that it's a joke. Art Auction houses (arguably ) exist primarily to aid rich people's tax evasion. Guaranteed minimums on objects sold, "anonymous" sockpuppet buyers artificially bidding up prices, appraisals done by people with no incentive not to inflate prices -- all of these things make tax evasion easy for the .01%. When you're that rich you hire a former IRS agent who quit to work in the private sector. He helps you evade all the tax laws that he once worked to enforce, because he knows them better than anyone. Rich people can inflate the value of their artworks with trivial ease through the auction house system. All they're doing is avoiding taxes.
Tsubasachan 8y ago
Its not easy going after the super rich. They can, and do, hire the best and brightest.
charlesdm 8y ago
Getting audited is bad, why? The point is: can the IRS make their case and prove that whatever behavior by a taxpayer is not actually sound and proper? If you make a seemingly reasonable decision, even with an ultimate (very) beneficial tax outcome, there is not much that can be challenged if no laws have been broken. Add to that the army of lawyers that on meaningful cases will keep pushing things out forever, and you should have an understanding as to why tax authorities around the world do not like to challenge the very wealthy that much. They often also control companies and assets that employ people, which can be used as leverage in negotiations.
- deleted 8y ago
  [deleted]

IshKebab 8y ago

But that's just fraud.

GFischer 8y ago
Very hard to prove fraud for the IRS, I guess. Nobody's saying these rich people are behaving ethically.
- deleted 8y ago
  [deleted]

wuliwong 8y ago

Is this something limited to art? What markets commonly have 7.5 times growth in 3 years? Also, it seems that getting an appraisal at a value that nobody would pay seems off to me. What is the appraiser basing the valuation off of if not other recent sales?

cowkingdeluxe 8y ago
Not limited to art. It's easy to get a trusted appraiser for the wealthy. It is very difficult for the IRS to challenge. Examples other than art: Company shares, real estate, time in certain contexts. Edit: I'd like to point out GFischer's excellent summary on this https://news.ycombinator.com/item?id=18130720 https://news.ycombinator.com/item?id=18130720
- TAForObvReasons 8y ago
  Computing too. Epic Games decided to make certain assets for the Paragon game free for use (with a black-box valuation), and it wouldn't be surprising if companies like google put a valuation on open source software that they released and took a deduction. https://www.unrealengine.com/en-US/blog/epic-games-releases-12-million-worth-of-paragon-assets-for-free https://www.unrealengine.com/en-US/blog/epic-games-releases-...
ohyes 8y ago
If you ask Trump, real estate

compsciphd 8y ago

Not my experience with donating a car. IRS rules are you don't get an "appraised" (or blue book) value for the car, you get whatever the charity is able to sell the car for or $500 (whichever is more). The only time you might get the blue book value is when the charity is able to use the donation as is for itself (i.e. donate a car to meals on wheels and their volunteer uses the car to deliver the meals). I think a charity would have a hard time justifying an "art" donation as something they are using as is.

gcb0 8y ago
your problem is being poor. if you had opted to be born rich, your friend's charity would have bought your car over the appraised value and you would have made a profit! all with tax free dollars all around.
smelendez 8y ago
There are specific IRS rules for vehicles. I imagine that's because they depreciate over time.
cavanasm 8y ago
They can always say they use the art as decoration for charity events if they need a "use as is" reason for why they accepted the excessive valuation.
URSpider94 8y ago
The IRS made specific rules for vehicles because of a massive spate of “cars for xxx” charity donation scams. Basically, you could donate a junker car, the charity (more properly, the charity’s contract car donation service, a few companies did this for a large number of sponsor charities) would get you a massively padded appraisal, and then would crush the car and give the charity $50. You got a fat tax write-off, the charity got $50, and the service got the scrap value of the car, minus $50.

andrewla 8y ago

This is indeed a very common strategy. It is also very commonly caught and detected, and doing so is straightforward. At some point the asset get liquidated. If the appraisal was done in good faith, then the taxpayer has to pay the back taxes without penalties or prejudice. If the appraisal was deliberately manipulated, then there is a strong possibility of criminal charges and fines for evasion. If the article genuinely depreciated in value, then the burden falls on the taxpayer to prove this, and in illiquid markets this is very difficult to establish.

guelo 8y ago
The GOP already took care of that for them: I.R.S. Tax Fraud Cases Plummet After Budget Cuts https://news.ycombinator.com/item?id=18115729 https://news.ycombinator.com/item?id=18115729
- nojvek 8y ago
  The rich got richer and suffocated IRS from being able to touch their $$$$ Something something we are all equal but some are more equal than others.
- masonic 8y ago
  Look at the charts in your own link, spanning 2007-17. Audit rates were increasing under GWB, then plummeted over the course of the Obama administration into 2017.
  - guelo 8y ago
    The Republican congress got serious about attacking the IRS after the fake IRS Tea Party scandal.
    - sosense 8y ago
      Fake scandal? No, that's re-writing history. Obama suggested the IRS target his enemies, mostly conservative groups, and the IRS did exactly that. The only thing fake about it is the news reports calling the scandal "fake."

prostoalex 8y ago

> gets it appraised for $75m, knowing full well that no one would actually buy it for that This is a very good way to trigger an IRS audit. Contrary to popular perception, those investigators weren't born yesterday. > This is a very common strategy. You are saying this based on what data? Are you a CPA or a tax planner?

deleted 8y ago
[deleted]