[cowkingdeluxe]

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.

[andrewla]

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]

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

[masonic]

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]

The Republican congress got serious about attacking the IRS after the fake IRS Tea Party scandal.

[sosense]

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."

[pas]

Do you have sources on Obama suggesting that?

Otherwise it's just a very baseless claim about an otherwise well documented problem about a few IRS bureaucrats. ( https://en.wikipedia.org/wiki/IRS_targeting_controversy )

[pas]

Look at how the funds requested by Obama got denied by Congress again and again.

[masonic]

The decrease started after the Democrats took sole control of Congress in January 2007 and accelerated while they were still in total control of Congress and the Presidency.

[nojvek]

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.

[candiodari]

Why bother getting money back out of charities ? What matters about money is not who owns it but who controls it. As long as the same person has control of the charity, what's the problem ?

(and that control is there or they would never be able to sell that illiquit painting)

[true_religion]

Using art as an example of an illiquid market, a piece may be valued at an amount that cannot be realized for 5 years or more, but the current holder just does not want to hold it for that long. The theoretical value does not change even if you buy it for less than that.

So charities can and do hold art pieces for years, then sell them at auctions when they know a good buyer is available and interested in benefiting the charity.

It may even sell for higher than appraisal just because of competition for the piece, or competition to look as of you are giving the most to charity. After all, no one goes to charity auctions for a good deal.

[prostoalex]

> 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?

[MrEfficiency]

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.

[GFischer]

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).

[vinceguidry]

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]

Propublica: After Budget Cuts, the IRS’ Work Against Tax Cheats Is Facing “Collapse”

https://www.propublica.org/article/after-budget-cuts-the-irs...

[charlesdm]

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.

[Tsubasachan]

Its not easy going after the super rich. They can, and do, hire the best and brightest.

[wuliwong]

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]

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

[TAForObvReasons]

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-...

[ohyes]

If you ask Trump, real estate

[compsciphd]

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.

[URSpider94]

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.

[cavanasm]

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.

[smelendez]

There are specific IRS rules for vehicles. I imagine that's because they depreciate over time.

[gcb0]

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.

[IshKebab]

But that's just fraud.

[GFischer]

Very hard to prove fraud for the IRS, I guess. Nobody's saying these rich people are behaving ethically.