Monday, February 4, 2008

Looted Artifacts and Tax Fraud

The New York Times reports on an ongoing investigation in California into donations to four museums of artifacts taken from archeological sites in Thailand.  Under the scheme smugglers and art dealers sold looted items to Americans for relatively low prices.  The buyers then donated the pieces of art to museums, using inflated appraisals for the tax deductions.  The tax savings in individual cases are small because the appraisals were set below $5,000.  For contributions above that amount, IRC 170(f)(11)(C) requires that a taxpayer obtain a "qualified appraisal" and meet additional requirements.  The IRS may subject donations above this amount to greater scrutiny.  Thus, the scheme was set up to avoid the stricter requirements and scrutiny. 

The IRS, the Interior Department, Immigration, and Customs are all involved in the criminal investigation, and the scope of the investigation reflects concerns not just about lost tax dollars but the losses in the global archeological record.  Although the lost federal taxes are small, the cost in the loss of valuable archeological data is huge.  When someone loots items from an archeological site, surrounding materials are damaged, items are broken or destroyed, and much information about the artifact is lost because the location and other materials are not catalogued.  The investigations have focused on a smuggler and the owners of an Art Gallery who assisted clients in buying and donating the artifacts.  Additional indictments may follow.


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