Appraiser tries to lower estate tax by undervaluing paintings

When a New Jersey resident is the executor of an estate, there may be items that need to be appraised. It is important to choose an independent appraiser who does not have a conflict of interest. The person should not be someone who will benefit from the sale of the items.

In one case, an executor had two Old Master paintings appraised. One was valued at $500,000 and the other at $100,000. The appraiser was from Sotheby's, and that company was also supposed to in charge of auctioning the paintings. However, the IRS argued that the values were $1.75 million and $300,000, respectively. When the estate petitioned for a redetermination, the IRS raised the value to $2.1 million and $500,000.

The U.S. Tax Court agreed that the appraiser had lowballed the prices because of the advantage to Sotheby's. The total discrepancy in value was about $1.77 million. The court also found that the appraiser had exaggerated the difficulty of cleaning the paintings. The lowball estimate would also have benefited the executor and the estate because it would have resulted in a lower estate tax.

Even if people do not own expensive artwork, some items in their estate might need appraisal. They might want to discuss those items and some guidelines for appraisal with the person they have chosen as executor. If they are concerned about estate tax, they might also want to discuss strategies for its reduction with an attorney. An executor who is struggling with estate administration also may want to consult an attorney for assistance with the process. Estate administration can be complex, and an executor is not expected to know all of the relevant rules and regulations. However, the executor is expected to be ethical and honest.

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