When an asset is transferred by gift or by the settlement of an estate, whether the gift is to a charity or to an individual, whether it is made directly or through a trust, you must declare the fair market value (FMV) of the asset; and possibly pay taxes or, in the case of a charitable donation, benefit from an income tax deduction. Determining the FMV of publicly traded stocks and bonds is relatively simple because stocks and bonds are fungible and market prices of similar investments sold on the same day as the transfer are readily available. It is more difficult to determine the FMV of illiquid assets, such as private companies, real estate and tangible assets. This is especially true when determining the FMV of artwork and other collectibles, where the asset is often not only illiquid, but may also be unique, making it difficult to find. comparable sales under contract with listed investments.
To determine the FMV of any illiquid asset, you will need a valuation that meets the Uniform Standards of Professional Valuation Practice (USPAP). For works of art and collectibles in particular, the appraisal must also meet the standards of the Art Advisory Panel of the Internal Revenue Service. Often, especially in the case of an estate, this assessment process is done in a hurry since it is necessary to file a tax return within nine to twelve months of the date of death. To avoid errors resulting from hasty actions, we encourage all owners of fine art and collectibles to begin an inventory during their lifetime that meets at least USPAP and Art Advisory Panel standards. Here are our recommendations.
Description of an item:
When describing an item, whether tangible (like a coin) or intangible (like copyright), it is necessary that descriptive terms and references be consistent. For example, if one item is described as created by Michelangelo di Lodovico Buonarroti Simoni and another as created by Michelangelo, there may be confusion as to whether they both refer to the same artist. One source of descriptions is the Getty’s Categories for the Description of Works of Art (CDWA) is a scheme for describing basic records of works of art and collectibles that includes the categories by which an object, architecture, or group can be consistently described. An example of such a catalog description for Vincent Van Gogh’s “Irises” can be seen at
When describing an item, remember that there are two types of data involved: visual and textual. Additionally, references such as location, ownership, medium, concept, and subject must be included in each record. Ideally, if the description references an authoritative record that may not be readily available online, such as an auction catalog, a digital image of the relevant reference is added or an existing record to be modified, at the Evaluation.
USPAP Appraisal Standards and Art Advisory Committee Checklist
When reviewing inventory for an appraisal, it is helpful to keep the USPAP and Art Advisory Panel standards in mind. Here is a checklist.
- Identification of the owner(s),
- Identification of the intended use of the description.
- Identification of the type and definition of the most likely value and prices in terms of:
- Financial arrangements equivalent to cash (i.e. collateral for loans), and
- Other precisely defined conditions and any non-market financial conditions or incentives, the conditions of which are clearly identified.
A COMPLETE DESCRIPTION OF THE ART OBJECT, INCLUDING:
- The name of the artist or culture,
- title or subject,
- The medium, such as oil or canvas, or watercolor on paper,
- The date of creation,
- The size,
- Any mark, signature or label on the art object, on the back of the art object or affixed to the frame,
- The history (provenance) of the item, including proof of authenticity, if this information is available,
- A record of all exposures to which the item has been exhibited,
- Any reference source citing the article, and
- The physical condition of the item,
- A professional quality photograph of a size and quality fully showing the item, preferably an 8 × 10 inch color photograph or color transparency, at least 4 × 5 inches,
- The quality of the article in its type,
- Other physical and economic attributes that have a significant effect on value,
- Assessed ownership interest, if there is more than one owner
- Known restrictions on the item, and
- Any other element, such as a frame, associated with the element.
- The extent of work required to produce a credible assessment.
- Comparable sales analysis, for a credible comparable sales comparison based on sales valuation if necessary.
- Cost analysis for credible cost assessment, if required, including:
- The effect on value of any charges, such as pledges.
- The value of an item reflects that the item is part of a collection of items, including:
- Comparable sales of an assemblage of similar items as inventory or as a collection
- Notice on the effect of selling all items in a collection at once
- The estimated time required to sell the individual elements of an assembly at their fair market value
- The effect on the market of the repair, restoration or other modifications made to the item.
It may seem overwhelming at first, but if you start with the basic descriptions and add information over time, it’s possible to have an inventory that meets the necessary standards. We used an online collections management application to collect and process information for our customers. In doing so, we have reduced both the costs of the appraisal required for gift and estate declarations and the number of possible errors, thereby reducing the likelihood of an audit.