IRS Seeks Taxes On Capital Gains
FINE ARTS COLLECTORS
WHEN measured against the overall population, art lovers are probably no more or less honest than anyone else. They want to pay as few taxes as possible and declare every deduction in sight. Because their standards of honesty are not always as elevated as their aesthetic tastes, they sometimes run afoul of the Internal Revenue Service, which has become a bit more strict over the past decade. Those who collect or invest in works of art as well as others who give of their time in museums should be up on the latest IRS attitudes.
The largest change is a new aggressiveness in prosecuting collectors who are somewhat remiss in reporting their capital gains from the sale of artwork.
``We're periodically asked by the IRS to provide a sample of client transactions, and there may be a certain, small percentage of our clients who have not paid their capital-gains taxes,'' Paul Jones, treasurer of Christie's auction house, said.
Other auction houses and even some art dealers have been audited by the IRS, in search of tax delinquents.
The problem of nonpayment of capital-gains taxes is certainly larger than the fine art world. According to several estimates, between 17 and 22 percent of all capital gains - profits on the sale of stocks, bonds, real estate, stamps, gold, and other investments - has been going unreported. Under the 1982 Tax Reform Act, commodities and securities brokers were required to report to the government every transaction (on Form 1099) involving a sale of assets.
There has been discussion of broadening the definition of ``broker'' to include art dealers and auctioneers. The high prices of certain works at auction have made the government want to double-check that all taxes are being paid.
Most art dealers claim that they don't know the extent of the problem as reporting capital gains is not something they generally discuss with collectors. ``I know of one man who said he didn't pay the capital gains, but I've never heard anyone else talk about it,'' said Ivan Karp, owner of O.K. Harris gallery in New York City.
``The IRS has come to look at our books,'' Dorsey Waxter, director of New York's Andre Emmerich Gallery, stated. ``I suspect that some people are not reporting their capital gains, but that is truly up to the collector and is not something that we ask or talk about.''