ART COLLECTOR AGREES TO PLEAD GUILTY IN TAX SCHEME INVOLVING INFLATED APPRAISALS FOR CHARITABLE GIFTS

LOS ANGELES – An art collector from Irving, Texas was charged today in a criminal tax case related to a charitable-giving scheme in which fraudulent tax returns claimed bogus deductions for artworks donated to charity in exchange for appraisals that inflated the value of the gifts.

Edward Stanton was named in a criminal information alleging one count of causing a false income tax return to be filed with the Internal Revenue Service. In a plea agreement also filed today in United States District Court, Stanton agreed to plead guilty to the felony offense that carries a statutory maximum penalty of three years in federal prison.

The tax scheme involves the paintings of Mexican artist Jesús “Chucho” Reyes Ferreira. According to documents filed with the court today, Stanton owned approximately 1,500 paintings by the deceased artist, works that he purchased in 1990 for approximately $1 million, or about $750 per painting. Stanton claimed that the value of the paintings were increasing every year, even thought there were no sales of similar Reyes works to justify the purportedly increased values. Stanton started selling and gifting some of the paintings to customers in 1999, telling the recipients of the artwork that they could donate the pieces to a non-profit organization and receive a sizable tax deduction.

After selling or giving the paintings, Stanton suggested a charity to his customers. In the plea agreement filed today, Stanton admitted that as part of the donation process he provided inflated price estimates – what he called “claimed values” – to an appraiser, knowing that the appraiser would rely on his estimates.

In the plea agreement, Stanton admits recirculating some of the artwork through the sale-donation process. After being sold by Stanton for $4,000 and donated to the charity with an appraised value of $23,000, Stanton purchased some of the paintings back from the charity for $1,000 each, “re-titled” the artworks and then sold the pieces for $4,500 to different customers, who in turn donated the paintings to the same charity and obtained inflated appraisals.

In his plea agreement, Stanton admitted that he helped three taxpayers obtain inflated appraisals that were the basis of deductions on their 2004 tax returns. As a result of the improper deductions, the government suffered a tax loss of approximately $370,938. Stanton agreed in the plea agreement to make full restitution to the IRS.

“The IRS and the Department of Justice are working vigorously to stop abusive charitable contribution schemes,” said Leslie P. DeMarco, Special Agent in Charge of IRS-Criminal Investigation in Los Angeles. “These activities unfairly shift the tax burden to honest American taxpayers. As our tax filing season winds down, today’s court filings should serve as a reminder to taxpayers to be wary of any scheme that purports to allow inflated charitable contribution deductions.”

Stanton is expected to make his first court appearance in this case on April 25 in United States District Court in Los Angeles. 

The case against Stanton is the result of an ongoing investigation by IRS - Criminal Investigation. 

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