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The appraisers of fine art who are most acceptable to insurance companies and the IRS carry credentials that they have earned through prescribed academic study, experience and apprenticeship, during which many of their appraisals have been peer-evaluated and examined. Upon completing this process they are awarded certification and membership in a professional association such as the Appraisers Association of America, the International Society of Appraisers or the American Society of Appraisers.

These standards were developed by the Appraisal Foundation, in Washington, D.

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It was founded in and was named by Congress in as the source for appraisal standards and appraiser qualifications in the aftermath of the savings and loan crisis. USPAP compliance is now required by all of the major fine arts appraisal associations, with a compulsory hour course of study as well as required examinations with recertification every five years. Most appraisal professionals set their fees on an hourly or per-diem basis. In most cases, the appraiser is able to give the client a broad idea of the time needed to complete the job.

Professional appraisers may choose other methods of billing, such as on a per-object basis, but all professional associations prohibit their members from billing based on a percentage of the eventual appraised value of the piece or collection. Percentage billing is also prohibited by the IRS Treas.

Valuing Art for Tax Purposes

The professional art and artifact appraiser must produce a complete analysis of artwork for tax purposes to establish its value and thus minimize the potential of an IRS challenge. The volatility and unpredictable nature of the art market, with its ever-changing tastes and styles, as well as price and value corrections, can make agreeing on a valuation challenging. However, understanding the appraisal process allows both the taxpayer who owns art and his or her CPA tax adviser the opportunity to make the most informed decision.

In , the most recent year for which a report is available tinyurl. The panel recommended acceptance of Another 2. The panel reported aggregate results of its reviews for estate and gift cases separately from charitable deduction cases:. Estate and Gift Cases. Of these, it concluded reviews of items percentages are of total estate and gift items :. Reviews Concluded. Charitable Contributions.

Of these, it concluded reviews of items percentages are of total charitable contribution items :. Artworks are often donated for a charitable deduction for income tax purposes or valued as a gift or part of a taxable estate. CPAs need to make sure that clients have obtained a qualified appraisal of a fair market value that can be successfully defended in a return examination. Also, the IRS has challenged blockage discounts applied by taxpayers to collections of artworks. As with other tax-related valuations of personal property, a qualified appraisal prepared by a qualified appraiser is essential.

Credentials for fine art appraising usually include membership in a professional association and adherence to the substance and principles of the Uniform Standards of Professional Appraisal Practice. Alan Breus alanb thebreusgroup.

What is Art Valuation?

JofA article. Use journalofaccountancy. CPE self-study. For more information or to make a purchase or register, go to cpa2biz. The Tax Adviser and Tax Section.

What Determines the Value of Art? - The Artists' Fine Art Gallery

The Tax Adviser is available at a reduced subscription price to members of the Tax Section, which provides tools, technologies and peer interaction to CPAs with tax practices. The Section keeps members up to date on tax legislative and regulatory developments.

Visit the Tax Center at aicpa. The current issue of The Tax Adviser is available at aicpa.

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Information about the PFS credential is also available at aicpa. More from the JofA :. Technology assessments may open the door to new engagement opportunities for your firm.

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A counterintuitive strategy can save taxes by including otherwise excludable scholarships in gross income. Toggle search Toggle navigation. Breaking News. Valuing Art for Tax Purposes Beauty may be in the eye of the beholder, but art valuation requires reason and objectivity. THE APPRAISER For appraisals that result in a substantial tax valuation misstatement, substantial estate or gift tax undervaluation within the meaning of section g or gross valuation misstatement within the meaning of section h , the appraiser can be liable for a penalty.

Latest News. Most Read. FEATURE Maximizing the higher education tax credits A counterintuitive strategy can save taxes by including otherwise excludable scholarships in gross income.

The Age of the Map

Conversely, companies with substandard, flat or decreasing revenues will garner a lower than average market multiple. It should be noted not all revenue growth is created equal. Recurring revenue growth will be more highly valued than an equivalent sized company experiencing a revenue spike due to a significant, one time project. Companies generating relatively high gross margins typically command a valuation premium.

This usually leads to a higher EBITDA multiple as each incremental dollar of revenues generates better than average profitability. The magnitude, or absence, of customer concentration significantly influences Enterprise Value. Companies whose revenues are concentrated within a particular end market are more susceptible to the impact of sector specific variables, such as its cyclical nature, the introduction of new regulations or disruptive technologies, increased competition, etc.

In certain situations, industry concentration may be viewed positively. Industries currently growing faster than GDP are plastics, medical, and aerospace, to name a few. While such situations are not unusual, over-reliance on a single person results in, or the perception of, increased business risk.

All else being equal, the market is more apt to assign a higher value to a company possessing a more complete management team with talented individuals leading the key functional areas of Sales and Marketing, Finance, Engineering, and Operations. And we tell our managers we want the moat widened every year.