NORTHAMPTON, MASS. — WHEN measured against the overall population, art lovers are probably no more or less honest than anyone else. They want to pay as few taxes as possible and declare every deduction in sight. Because their standards of honesty are not always as elevated as their aesthetic tastes, they sometimes run afoul of the Internal Revenue Service, which has become a bit more strict over the past decade. Those who collect or invest in works of art as well as others who give of their time in museums should be up on the latest IRS attitudes.
The largest change is a new aggressiveness in prosecuting collectors who are somewhat remiss in reporting their capital gains from the sale of artwork.
``We're periodically asked by the IRS to provide a sample of client transactions, and there may be a certain, small percentage of our clients who have not paid their capital-gains taxes,'' Paul Jones, treasurer of Christie's auction house, said.
Other auction houses and even some art dealers have been audited by the IRS, in search of tax delinquents.
The problem of nonpayment of capital-gains taxes is certainly larger than the fine art world. According to several estimates, between 17 and 22 percent of all capital gains - profits on the sale of stocks, bonds, real estate, stamps, gold, and other investments - has been going unreported. Under the 1982 Tax Reform Act, commodities and securities brokers were required to report to the government every transaction (on Form 1099) involving a sale of assets.
There has been discussion of broadening the definition of ``broker'' to include art dealers and auctioneers. The high prices of certain works at auction have made the government want to double-check that all taxes are being paid.
Most art dealers claim that they don't know the extent of the problem as reporting capital gains is not something they generally discuss with collectors. ``I know of one man who said he didn't pay the capital gains, but I've never heard anyone else talk about it,'' said Ivan Karp, owner of O.K. Harris gallery in New York City.
``The IRS has come to look at our books,'' Dorsey Waxter, director of New York's Andre Emmerich Gallery, stated. ``I suspect that some people are not reporting their capital gains, but that is truly up to the collector and is not something that we ask or talk about.''
Another area in which the government appears to be cracking down is in deductions for ``investing'' in works of art. The concept of an investor in the art world - as opposed to a collector or dealer - is rather nebulous, and some people have attempted to take advantage of the fuzzy IRS language to claim deductions for framing works of art, insuring and storing it, taking trips abroad to buy it, as well as the costs of conserving and cataloging it.
To be an ``investor'' in art, the IRS states, one must claim that one's interest in art is purely as an investment and that one must consult occasionally with experts and subscribe to the relevant periodicals. That definition can probably fit most art collectors who ``consult'' with dealers from whom they buy works and ``subscribe'' to the leading art magazines anyway. A number of collectors have thought themselves clever by simply telling the IRS that their intention is solely to make money, but the government has not been deceived.
If the IRS's definition of an investor has been unclear, the Tax Court has firmly established that works cannot hang in someone's home or office - because the owner would derive some pleasure from them - but must be warehoused elsewhere. Most so-called investors are really just collectors, the court feels.
A collector, the government has ruled, is a hobbyist and not, therefore, entitled to any deduction. Some people's hobbies, however, are to volunteer their time in museums, and the rules covering what they may and may not claim as legitimate deductions appear to be loosening.
A Gallup poll found that 5 percent of the adult population in the United States - more than 2.5 million people - volunteer their time and services to some degree in the area of arts and culture, working an average of four hours a week. Over 100,000 of those people work in museums, almost a third more than in the 1970s.
Recruiting volunteers can be as important as fund raising to museums, and legislators on both the state and federal levels have sought to increase the stakes. The standard mileage deduction for volunteers has been increased from 9 cents to 12 cents a mile.