• Tax Court holds for taxpayer on reasonable reliance on an appraisal for charitable deduction—In WT Art Partnership LP v. Commissioner, T.C. Memo. 2025-30 (April 9, 2025), the Tax Court upheld the taxpayer’s use of an appraisal from a Chinese auction house that didn’t meet the technical requirements of a qualified appraisal but was reasonable given the prior history of the taxpayer’s settlements with the Internal Revenue Service during audit.
Oscar Liu-Chen Tang created a partnership, owned by family trusts, which purchased a collection of ancient Chinese art in 1997. The Metropolitan Museum of Art (the Met) in New York City expressed an interest in the art. Oscar was a sophisticated businessman, having emigrated to the United States and founded a highly successful investment firm. The partnership paid $5 million for the collection, which was a significant discount from the price it would have had to pay if each painting were purchased separately.
Within a few weeks, the family trusts signed an agreement to donate the 12 paintings to the Met by 2012. The partnership made gifts of the paintings over various years spanning 2005 to 2012. The 1997 gift offer stated that the Met wouldn’t deaccession the paintings. There’s no other mention of the deaccession restrictions in any other documentation of the gift or the transactions at that time by the Met, including those that implemented the gift in 2010.
The partnership’s 2005 tax return was selected for audit. For those gifts, the IRS questioned an appraisal by a London gallery. To bolster the valuation, Oscar sought the opinion of a large and prominent Chinese auction house, the second largest Chinese auction house in China at the time. Ultimately, the parties settled on a stipulated value that was 90% of the partnership’s claimed value. The IRS didn’t argue or raise concerns about the qualifications of the appraisal or the Chinese auction house.
In 2010, 2011 and 2012, the partnership donated five paintings and claimed over $73 million in charitable contribution deductions. The largest painting of the group donated was Palace Banquet. The London gallery had estimated its value at $11 million, but the Chinese auction house valued it at $26 million. Oscar reviewed the auction house appraisal and requested that it be expanded to include further analysis and comparables, but no revisions were made. It was submitted in the form that he reviewed.
The IRS audited the partnership’s 2010, 2011 and 2012 partnership returns and disallowed the deductions. The partnership appealed, and the two parties ultimately came to an agreement on the value of four of the five paintings. The Tax Court case focuses on whether the appraisals were qualified and the value of the fifth painting, Palace Banquet.
Under Internal Revenue Code Section 170(a)(1), a charitable deduction must be substantiated by a “qualified appraisal,” which is a valuation of the fair market value of the donated property at the time of donation by a qualified appraiser. The Treasury regulations define a “qualified appraiser” as an individual who, among other things, has education and experience in valuing the type of property at issue, holds themself out as an appraiser and prepares such appraisals regularly for compensation.
The Tax Court held that the appraisals prepared by the Chinese auction house didn’t qualify because they weren’t prepared by an “individual” despite the auction house’s president signing the appraisal. Neither the president who signed the appraisal nor her staff who worked on the submitted appraisals were qualified to appraise artwork. Furthermore, the auction house didn’t hold itself out as an appraiser or regularly prepare appraisals. The evidence indicated that the appraisals were the only ones the auction house produced between 2010 and 2012.
The IRS had argued that a discount for lack of marketability applied because of the restriction on deaccession. However, because this restriction wasn’t mentioned in the 2010 gift documents, the court held it wasn’t relevant and didn’t impact value.
The court held, however, that while the appraisals weren’t qualified, the use of the appraisals was reasonable and not a result of willful neglect due to the use of them in prior negotiations with the IRS without argument. That said, the court disagreed with the taxpayer’s valuation of Palace Banquet, reducing its value from $26 million to $12 million, triggering the accuracy penalties of 40% for valuation misstatement.
• Taxpayer granted time to make alternate valuation election—In Private Letter Ruling 202513003 (March 8, 2025), the decedent’s estate hadn’t yet received the appraisals of all estate assets by the time the Form 706 was due. The estate tax return was filed without making an election to use the “alternate valuation date” under IRC Section 2032(a) or for the protective election under the Treasury regulations. Later, the estate received the appraisals, and counsel for the estate advised the personal representatives to make the election to use the alternate valuation date. Following that advice, the estate filed a Supplemental Form 706 to attach the appraisals and make the alternate valuation date election. The estate filed the Supplemental Form 706 less than one year after the required filing date (including extensions).
Under Section 2032(a), if the value of the gross estate and the estate and generation-skipping transfer tax payable would be reduced, the estate may elect to value the estate’s property as of the 6-month anniversary of the decedent’s death. The election under Section 2032 must be made on the estate tax return, provided it’s filed no more than one year after the due date, including extensions. If a return is filed by the deadline, the estate can also make a protective election under the Treasury regulations to reserve the right for alternate valuation if it’s subsequently determined that the estate would qualify to do so. That protective election becomes effective when it’s determined that the alternate valuation date decreases the estate and the tax due. Regardless, once made on the filed return, the election is irrevocable.
The PLR held that the taxpayer qualified for relief under Treasury Regulations Section 301.9100 (so-called “9100 relief”). That section gives the Commissioner authority to grant an extension of time to make a statutory or regulatory election if the taxpayer demonstrates reasonable and good faith action and it doesn’t prejudice the government. Here, the taxpayer relied on a qualified tax professional who failed to advise the taxpayer to make the election (or a protective election) on the return as initially filed, so the estate was eligible for extension of time to make the election.
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