Paul L. Caron

Tuesday, June 22, 2021

NY Times: U.S. May Lift The Veil On Art Sales

Update:  New York Times, Quotation of the Day:

“The only ones who know are you, the art gallery and God.”
KHRISTA McCARDEN, a professor at Tulane Law School who specializes in the tax code, on the secretive finances of art sales.

New York Times, As Money Launderers Buy Dalís, U.S. Looks at Lifting the Veil on Art Sales:

Billions of dollars of art changes hands every year with little or no public scrutiny. Buyers typically have no idea where the work they are purchasing is coming from. Sellers are similarly in the dark about where a work is going. And none of the purchasing requires the filing of paperwork that would allow regulators to easily track art sales or profits, a distinct difference from the way the government can review the transfer of other substantial assets, like stocks or real estate. ...

In January, Congress extended federal anti-money laundering regulations, designed to govern the banking industry, to antiquities dealers. The legislation required the Department of the Treasury to join with other agencies to study whether the stricter regulations should be imposed on the wider art market as well. The U.S. effort follows laws recently adopted in Europe, where dealers and auction houses must now determine the identity of their clients and check the source of their wealth. ...

To art world veterans, who associate anonymity with discretion, tradition and class, not duplicity, this siege on secrecy is an overreaction that will damage the market. They worry about alienating customers with probing questions when they say there is scant evidence of abuse. ...

[T]here is no question the art market has exploded in value and scope from the sleepy days when its customs were created. Paintings routinely sell for $10 million, $20 million, often as much as the penthouses in which they hang. Though the profits from art sales are subject to the robust capital gains tax on luxury goods of 28 percent, the I.R.S.’s ability to track who is accurately reporting windfalls is something of a struggle. Even figuring out who sold what is a hurdle. Half the purchases are in private, not at public auction, so many prices never become public.

Recent studies have projected substantial tax evasion by the richest Americans, which led to President Biden’s plan to boost audits. While there is no evidence of widespread cheating involving art, experts say it’s clear the secrecy of the market creates vulnerabilities for an enforcement system that rarely conducts audits and relies heavily on the willingness of collectors to make plain their profits.

“The only ones who know,” said Khrista McCarden, a professor at Tulane Law School who specializes in the tax code, “are you, the art gallery and God.” ...

In cases where people fail to report the profits from art sales, some advisers think the banking system is able to flag possible tax evasion. But other experts said the ranks of I.R.S. and other regulators were too thin to follow up on the millions of banking alerts that come in each year.

“They get so many reports, they could not possibly follow up on all of them,” said Julie A. Hill, a University of Alabama School of Law professor.

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