What an IRS Battle Over an 850-Year-Old Painting Means for Your Taxes

IRS | Tax deduction | Charitable donations | September 10, 2025 

This Week's Quote:  "Real courage is when you know you're licked before you begin.  But you begin anyway and see it through no matter what ."
          - Harper Lee

Nobody likes a battle with the Internal Revenue Service. But some battles are worse than others—and Oscar Tang has just been through a doozy. 

The Tax Court recently issued a decision in a long-running case between the IRS and Tang, a wealthy Chinese-American businessman and philanthropist. The dispute was about donations of early Chinese paintings by Tang’s family partnership to New York’s Metropolitan Museum of Art in 2010-2012. 

The decision was a victory for the Tangs—sort of. The Tang partnership originally claimed $74 million in deductions for five paintings and will now get about $54 million instead. But that’s far better than the outcome the IRS sought, which was no deduction at all. The donors also owe a penalty of as much as $2 million, because the court ruled that one painting was greatly overvalued.

The case is yet another reminder of how details can make or break tax deductions for charitable donations.

Donations of property are thorny because they’re often hard to value, unlike gifts of cash or traded securities. This category includes contributions of art, real estate, collectibles and nontraded stock, among others. (However, there are separate rules for donations of used cars, boats or airplanes.) 

The provisions the IRS used to challenge the Tang donations apply to more than big-dollar gifts.

“For smaller donors as well as large ones, not following these rules can invalidate the entire deduction—and the rules are very picky,” says Ed Zollars, a Phoenix-based CPA who lectures about federal tax developments.   

For example, the law requires formal appraisals of donated property valued at more than $5,000—and its reach is expanding because the threshold, enacted in the 1980s, isn’t indexed for inflation. There are also stringent requirements for determining who is an acceptable appraiser.  
 
Of course, the Tang case stands out for the amounts involved and for the involvement of a premier institution. It also underscores how important tax issues are for such gifts—and how hard the IRS can fight if it thinks a donation’s value is overstated.

Here’s what happened, according to the court decision. (Through his attorney, Ross Hooper of Seward & Kissel, Tang declined to comment on the case. An IRS spokesman also declined to comment.)

As far back as 1970, the Met wanted to build a collection of early Chinese paintings from the 10th through the 14th centuries. In the 1990s, Oscar Tang joined the Met board and pledged to help.

Tang and his family then used a partnership and other vehicles to acquire 12 early Chinese paintings for $5 million in 1997 from noted collector and Met donor C. C. Wang. 

At the same time, the Tang family promised to donate 11 of the 12 paintings to the Met by 2012 or Tang’s death, whichever was later.  In 2010-2012, they donated five paintings and claimed a total value of about $74 million. All five were appraised by Beijing-based China Guardian, the country’s second-largest auction house. 

While the IRS hadn’t challenged deductions for some earlier Tang partnership donations appraised by China Guardian, it challenged these. 

Among other things, it said the auction house wasn’t a “qualified” appraiser and that the paintings were overvalued. Subsequently, the IRS and the partnership agreed on valuations for four of the five paintings. Their total value dropped from $47.9 million to $41.5 million.

That left a disputed value for one painting, a rare and large hanging silk scroll perhaps 850 years old called “Palace Banquet.”

A gallery in Tokyo had estimated the value of the painting at $11 million in 2007, but China Guardian pegged it at $26 million at the time of donation in 2010. The increase surprised Tang, who expected the value to be about $11 million, but the partnership claimed the $26 million value.    

The Tang family and the IRS battled in Tax Court over the deductions for all five paintings, and the stakes were especially high for Tang when it came to the court’s assessment of the appraiser. If the individual doing the appraisal isn’t “qualified,” then an entire deduction can be disallowed.

In the end, the judge agreed with the IRS that China Guardian wasn’t a qualified appraiser within the meaning of the law, for several reasons. For example, an appraiser must regularly perform appraisals—but the Tang partnership paintings may have been the only ones China Guardian appraised for a fee during 2010-2012. 

All wasn’t lost, however. The judge ruled that because Tang relied on China Guardian in good faith, the partnership was allowed to deduct the value of “Palace Banquet” and the other four paintings. Based on testimony, the judge lowered the value of “Palace Banquet” to $12 million from $26 million, for total deductions of about $54 million for the group.  

Still, the victory came at a cost. Because the value claimed for “Palace Banquet” was more than double its $12 million correct value, the donors owe a stiff penalty of as much as $2 million. The partnership did escape other penalties the IRS requested.

For donors of property worth more than $5,000, the takeaway is: Be. Very. Careful.

Congress made detailed rules on such gifts, especially for art, to combat abuses. To pass muster, a qualified appraisal must have a dozen key elements, including information about the appraiser’s qualifications and restrictions on the use or disposition of the property. The appraiser also has to be qualified under another set of rules.

Time restrictions apply as well. Appraisals must be signed no more than 60 days before a gift and no later than the due date of the donor’s tax return.

Donors often need to file IRS Form 8283 detailing the contribution; sometimes they must attach the appraisal. For more information, see IRS Publication 526 on charitable contributions and Publication 561 on determining the value of donated property. 

As the Tang case shows, there are many traps for the unwary on the path to a tax deduction for charitable donations of property. 

Credit goes to Laura Saunders, The Wall Street Journal, May 2, 2025

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This Week’s Author, Belinda Stickle