Typical areas of concerns would be include:

• Do you understand the term passive loss?
• Do you trade your inventory with another galleries?
• Do you supply merchandise to commerce posts?
• Do you sell strictly on consignment or do you own the art that you are selling?
• Do you purchase items such as jewelry or pottery from walk-in vendors?
• Do you pay commissions to brokers or agents?
• Do you ever pay an creative person in cash?
• Did you cognize that a gallery owner is REQUIRED to be present at an IRS audit?
• Do you issue/receive 1099's for art that is purchased or oversubscribed on consignment?
• And there are galore more!

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION

• Industry Description and Characteristics 1-2
• General Description of the Industry 1-1
• Common Characteristics of the Industry 1-3

CHAPTER 2: METHODOLOGY

• Artists 2-1
• Art Galleries 2-3

CHAPTER 3: EXAMINATION TECHNIQUES

• Typical Books and Records 3-3
• Required Filing Checks 3-4
• Pre-Audit Considerations 3-1
• Initial Interview 3-2
• Information Document Request 3-2
• Income 3-5
• Expenses 3-5
• Cost of Goods Oversubscribed 3-5
• Background 3-1
• Audit Procedures 3-5

CHAPTER 4: AUDIT ISSUES

• Trading Posts
• Trades 4-1
• Other Areas 4-4
• Inventory 4-2
• Emerging Issue 4-5
• Art Consultative Panel - IRM 42(16)4.1 4-6
• Acquisitions of Inventory 4-4

GLOSSARY G-1