The IRS has been seeing a rise in fraudulent schemes involving tax deductions for donated art and has issued a warning to taxpayers, particularly high-income filers seeking a way to lessen their tax liabilities.

Unscrupulous promoters solicit taxpayers to purchase the art, often at a "discounted" price, then tell them wait to donate the art and then take an incorrect deduction for the art donated. This allegedly discounted price may also include additional services from the promoter, such as storage, shipping and arranging the appraisal and donation of the art, the IRS said. The promoter promises the art is worth significantly more than the purchase price. The art buyer is encouraged to donate the art after waiting at least one year and to claim a tax deduction for an inflated fair market value, which is substantially more than he or she paid for the artwork.

Promoters may suggest that taxpayers donate art annually and allow them to buy a quantity of art that guarantees a specific deductible amount, and they may even arrange for certain charities to take the donations.

The IRS said that it is conducting investigations into abusive art donation promoters. It is also conducting audits of taxpayers involving art donations. More than 60 taxpayer audits have been completed so far, producing more than $5 million in additional tax.

“Taxpayers should be wary of buying multiple works by the same artist that have little to no market value outside of what the promoter might be advertising,” the IRS warned, adding that promoters might arrange for specific appraisers for participants to use—an arrangement that often fails to describe the art adequately.

Properly claiming a charitable contribution deduction for an art donation requires a taxpayer to keep records to prove an art deduction: the name and address of the charitable organization that received the art, the date and location of the contribution and a detailed description of the donated art. There are additional requirements based on the value of the claimed deduction.

The IRS has a team of professionally trained appraisers in its Art Appraisal Services, who provide assistance and advice to the IRS and taxpayers on valuation questions in connection with personal property and works of art.