Discussion:Disappointing times three - or more

From TaxAlmanac, A Free Online Resource for Tax Professionals
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> General Chat --> Disappointing times three - or more


Spell Czech (talk|edits) said:

1 December 2012
I read this in the audit guide for art galleries linked in that other forum that we babble in/in which we babble:

"For example, precise records may not be available when there has been a purchase for a large amount of artwork at one time from one person, and when no actual controls are placed on the purchase, and therefore, there is no actual assignment of cost per item. Normally this will be evident from unbalanced books at year end." [emphasis added]

I thought about this "instruction" for a coupla minutes before it dawned on me: Which of us is most disappointed by this item in the audit guide: The person who wrote it, who's not helping anybody; the auditor, who's trying to apply it in the field; the taxpayer who's being audited, because it's pretty hard to defend against a nonsense attack; or we, taxpayers at large, who are paying for this with good hard dollars (for which we get nothing) and will have to pay again and again, to fight off the auditor's likely misplaced concerns about "unbalanced books"?

If the books aren't balanced, there's bad bookkeeping (and "the books" aren't "the books" because "the books" balance by definition at least in many folks' versions of accounting)...

Death&Taxes (talk|edits) said:

1 December 2012
I'd like to know, given the 'facts' of the example, how would the books be unbalanced?

Debit Art Inventory $100,000, Credit Cash in bank $100,000.

I do suspect the Auditor will be the most disappointed, but more than likely s/he has run into this before when using audit guides.

I had a client sell a large part of his inventory held for resale to a national museum in our nation's capital. In addition, he donated another part of his collection to this institution. He was able to identify the cost of each item, but I wondered if the museum allocated prices. To them, it became The Smith Collection; the items were no longer held for sale.

Podolin (talk|edits) said:

1 December 2012
I hardly know where to start/begin.

in that other forum that we babble in/in which we babble: Forget, for the moment, whether we can/should end a sentence with a preposition. What I never know is when to use "that" and when to use "which". Is the other forum one which we babble in? Or is it one in that we babble? Mind you, there is no dispute that babbling is what goes on in that forum. And I know what sounds right; I just don't know why.

The audit guide quoted above must be, I gather, for an art dealer. The recent post in that other forum was for a gallery in which no inventory is required because the art is created by the artist who is selling it. I am inferring solely from that post that an artist who creates art for sale in his business is not required to record inventory. Is that a rule or something, somewhere? Or, again looking at that post, is it because of some other rule regarding having less than $1,000,000 in gross receipts? Wait, I'm in "General Chat" here, so I'd better cut the technical stuff. If you guys (you know who you are) don't answer me here, I guess I'll post the question there - or, heaven help us - look it up.

Anyway, back to that audit guide, it seems apparent that IRS does not apply a very diligent review process to such guides. Maybe the writer of that precious guidance assumes that art galleries are Sch C filers which that are not required to present a balance sheet.

Which gets me to my real point in asking the technical question above. If the rule is that an artist is not required to inventory his "self-created-for-sale" art work no matter the amount of his annual gross receipts, fine. But does that rule apply to a C corp.? I note in that other post that the client was a C corp., and it paid the artist a salary. Is that salary deductible, or is it part of inventory cost? There I go again, technical stuff. Lemme know if you have the answers. Otherwise, I'll re-ask on the other forum.

Podolin (talk|edits) said:

1 December 2012
D&T: I am too tired to think this through. If your erstwhile client had, instead of donating some art and selling other art to that museum, sold it all in one transaction, would the tax result have differed? Example A: Sell $500k of art for $500k. Donate $500k of art. Example B: Sell $$1,000k of art for $500k.

Death&Taxes (talk|edits) said:

1 December 2012
For the seller, no difference.

I have to wonder about the sense of the audit guide: most galleries that I know take their works for sale on consignment, and thus do not own the inventory. [I did not tempt fate by writing 'galleries that I know of.']

Podolin (talk|edits) said:

1 December 2012
OK, I looked it up. 263A(h) and Rev Proc 2001-10. Good to go.

Sandy L (talk|edits) said:

1 December 2012
Podolin: See Revenue Procedure 2001-10- http://www.irs.gov/pub/irs-utl/revenue_procedure.pdf

Yes, we're talking about Revenue Procedure 2001-10 in conjunction with having less than $1Mil in gross receipts and not maintaining inventory.

Yes, the artist's salary was deductible when the gallery was a C-corp.

Sandy L (talk|edits) said:

1 December 2012
Nevermind, you posted right before me.

To join in on this discussion, you must first log in.
Personal tools