The use of art to evade tax obligations is not a novel concept. As such, it is not uncommon for those who deal and purchase art to find themselves the subject of a tax evasion investigation.
Investigations are on the rise: Government investigation efforts focus on art dealings
Recent technological innovations have allowed the government better means of tracking these transactions. As noted in a recent publication by MarketWatch, data mining in particular has played a large roll in guiding investigations initiated by state attorney general’s offices throughout the country. This has led to an increase in these investigations.
A case as example: Art dealer gets fined millions, faces prison time.
A recent case out of New York provides an example. In this case, the United States Attorney’s Office accused an art dealer of tax evasion. The government accused the art dealer of reporting business losses from her gallery when she allegedly realized a $3.7 million gain. According to the government, the dealer repeatedly used the gallery as a front for fraud. For example, the agency accused her of using business funds to pay for remodeling projects on her private residence as well as covering the cost of staying in an apartment during the project.
The dealer plead guilty to the charges and has agreed to pay over $3 million in restitution to the Internal Revenue Service (IRS). Sentencing will occur in January. Additional penalties could include up to six years of prison time.
Art transaction complexities: To pay a tax or not to pay?
The issue is difficult due to the fact that art sale transactions are extremely complex. In some cases the purchase may be exempt from taxation. An individual that purchases art for resale, for example, may qualify for an exemption.
A failure to properly navigate these complex matters can result in allegations of fraud. Such allegations are not to be taken lightly. If you face accusations from the government of tax fraud, contact an attorney. A lawyer experienced in the resolution of criminal tax issues can help better ensure your rights are protected.