Does Tax Evasion Exist In The Art Market?

What is Tax Evasion? Simply put, tax evasion is not paying taxes when you’re supposed to. Severity ranges depending on the person’s record, surprisingly enough tax evasion is pretty common among those self-employed. This is also true for workers who may be exploited by their employers due to them knowing very little about the American tax system (like myself). I don’t care, let’s just buy some artwork. Okay, so the process of buying high-end art turns out to be a lot like investing or that’s what these “curators” want you to believe. Most of the money made by gallery owners and these so-called art experts is done so by driving up the price of a piece by explaining how an artist is on the rise and if you buy it now it will sell more for later. Some buyers just want something that will look great in their home but sometimes money is just… better. And? Well, an interesting statistic I found is that 90% of all modern art that is bought is used for tax evasion. Okay, this could be a lie but let’s look at the process that I found on the most reliable source known to man, Reddit. The cycle is written like this: “Millionaire makes $20 Million in 2020” - “Millionaire hires an “artists” to make “art” for 25k” - “Artist paints a few strokes on canvas” - Millionaire has art appraised by an appraiser in his social circle” - “Appraiser values artwork at $20 million” - “Millionaire donates said $20 million artwork to a museum to get $20 million tax write off” - “Millionaire pays no taxes for 2020” - “Me at the museum thinking I understand the deep meaning of the piece without realizing it may have been used for shady purposes” When explained in such a way, it makes you think that you and I could pull this off because in all honesty... We probably could. Why Does this Work? Well, when you buy art, it’s treated as a personal purchase rather than a taxable affair. It works so well for those at the tippy top because of the appraisal. You cannot sell the piece for less than you bought it for as it won’t offset capital gains so, having connections to reliable “appraisers” is pretty vital in this case. This process has been going on for well over 50 years and is said to have caused the explosion of the art market. What’s seen as just a charitable donation to a local museum can turn out to be quite the trick when looked at closely. So what else can we do? Why not launder money? Sure, but what is money laundering? Money laundering is making dirty money clean, I guarantee that all of us have seen a movie or show that involves such a cause. A “front”, one that usually deals in cash, is used to turn the money you made illegally into legal usable paper, sounds easy enough. Let’s say you have a car wash that got 25 customers yesterday. Well, instead of writing down 25, you write down 100, and because your customers mostly use cash, you take some money from your stash and pay your business in the form of 75 customers. That money then turns “clean” in the eyes of the IRS and you just made a profit, congratulations! So can we do this with our art? Not ours, it only works with art that's already been established rather than what we commissioned our “artist” from earlier to make. This process needs a middleman or “art dealer” that will purchase anonymously on your behalf for a cut of the profits. This also requires some legitimate fronts for there to be no surprise about how you had the money you used to buy the artwork originally. It is then sold after some time to recover some of the money spent. The most important rule of all this is making it look as realistic as possible. Once you’re in the groove of things, it becomes easier and easier as time goes on. At least, that’s what I’ve heard.. I’ve already said too much… I gotta go.