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> If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels

> If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right? Nope. Think of it this way: - you lobby government to make charitable donations tax deductible, meaning you can reduce your income by the stated value of the donation - you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself - No one will buy your painting for $20_000_000 USD, so it's not really worth that in the open market, but the art museum (in your backyard & founded by you) will give you a receipt stating the art is worth $20_000_000 USD - Unless you reduce your income, your tax rate is 50%, so you donate the inflated art piece (to your art museum in your backyard), give yourself a receipt for the donation - You attach that receipt to your tax return, lowering your taxable income from $A_LOT to $A_LOT minus $20_000_000, which at a 50% tax rate saves you $10_000_000 in taxes

wtracy 5y ago
- you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself Isn't that a realization event right there? Obviously, the described scheme could still work if you sold one painting to yourself, and then donated N paintings based on that valuation.
- devoutsalsa 5y ago
  "The federal tax code allows you to contribute long-term appreciated securities—such as stocks, bonds, and mutual fund shares—directly to a charity without paying capital gains tax on the appreciated value, as you would if you sold it first and then contributed cash to the charity." [1] [1] https://www.fidelity.com/viewpoints/personal-finance/tax-breaks-for-charitable-giving https://www.fidelity.com/viewpoints/personal-finance/tax-bre...
  - wtracy 5y ago
    Sure the donation isn't taxed, but why wouldn't the original (fraudulent) sale be taxed? Selling an item at auction and buying it yourself isn't exactly a charitable contribution.
    - devoutsalsa 5y ago
      You don't pay (an income or capital gains) tax when you buy something. Only when you sell it. Maybe there's some other tax, like VAT or luxury or sales that are all based on the purchase price.
    - MagnumOpus 5y ago
      You can of course donate $20 mil to a charity that you can influence (a foundation of a relative or a friend’s family, say) and get that charity to buy the first painting at auction. This way you pay cap gains on 19 million but can offset 20 million of charity donations against the gain.

wtracy 5y ago

- you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself Isn't that a realization event right there? Obviously, the described scheme could still work if you sold one painting to yourself, and then donated N paintings based on that valuation.

devoutsalsa 5y ago
"The federal tax code allows you to contribute long-term appreciated securities—such as stocks, bonds, and mutual fund shares—directly to a charity without paying capital gains tax on the appreciated value, as you would if you sold it first and then contributed cash to the charity." [1] [1] https://www.fidelity.com/viewpoints/personal-finance/tax-breaks-for-charitable-giving https://www.fidelity.com/viewpoints/personal-finance/tax-bre...
- wtracy 5y ago
  Sure the donation isn't taxed, but why wouldn't the original (fraudulent) sale be taxed? Selling an item at auction and buying it yourself isn't exactly a charitable contribution.
  - devoutsalsa 5y ago
    You don't pay (an income or capital gains) tax when you buy something. Only when you sell it. Maybe there's some other tax, like VAT or luxury or sales that are all based on the purchase price.
  - MagnumOpus 5y ago
    You can of course donate $20 mil to a charity that you can influence (a foundation of a relative or a friend’s family, say) and get that charity to buy the first painting at auction. This way you pay cap gains on 19 million but can offset 20 million of charity donations against the gain.