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Many of the donors never saw, much less owned, the objects they gave, but lent their names to the transactions in return for generous tax write-offs, said Bruce McNall, who admits participating in the Getty scheme.

The donations helped the Getty build its well-known antiquities study collection -- objects not important enough to go on display, but of archaeological interest to researchers.

The scheme was discovered by Frel's deputy, Arthur Houghton, who raised the alarm internally just as the IRS began questioning some of the appraisals. By the time the controversy was exposed publicly in 1987 by the now-defunct Connoisseur magazine, Frel was on paid leave in Europe and the IRS investigators had moved on, records and interviews show. Frel died in May 2006, and no one at the Getty was ever prosecuted in the case.

"Taking advantage of the whole tax system -- that's how museums get things," said McNall, who went on to buy the Los Angeles Kings and produce movies before spending four years in federal prison for his role in a $236-million bank fraud.

Similar schemes have arisen elsewhere.

In 1982, two undercover IRS agents made donations of overvalued Egyptian antiquities to LACMA and UC Santa Barbara.

Senior LACMA officials accepted objects with inflated values and signed backdated donation forms for the agents, who posed as wealthy donors, IRS officials said at the time.The LACMA officials later told The Times it was an "honest mistake" and a "favor" for the donor, and promised to "tighten up procedures."

LACMA officials said no action was taken against the museum or its staff.

In 1983, the IRS found that gems donated to the Smithsonian Institution had been appraised at five times their true value. The museum pledged to tighten its procedures. But five years later, the museum accepted four Stradivari instruments valued at $50 million. Documents obtained by the Senate Finance Committee showed that the instruments had been appraised a decade earlier at a tenth of that value.

A hamstrung watchdog
The Smithsonian said it was not responsible for the new appraisal, which one expert called "preposterous." The donor later went to prison for an unrelated tax fraud.

Rampant overvaluations in the 1960s led the IRS to create a panel of art experts to evaluate the accuracy of appraisals.

The Art Advisory Panel -- a group of volunteer curators, dealers and appraisers -- travels to Washington twice a year to assess donations valued at over $20,000 that are found during routine audits. The IRS does not disclose the reasons for its audits.

As scrutiny has declined, the frequency and amount of inflation appear to have grown, figures show.

The panel's sample is so small that it is hard to draw broad conclusions. But that bigger picture was hinted at in a 2006 study by the IRS' watchdog, the treasury inspector general for tax administration, whose office looked at a statistical sample of all tax returns with donated art in 2002.

The study suggests that there were at least 200 inflated appraisals that year. The panel found only four. But the study concluded that creating a new program to check more art donations would not be cost-effective because they made up just under 4% of all charitable contributions.

Grassley, who requested the study, is considering new legislation that would require all art donations of a certain value to be checked by the panel.

http://www.latimes.com/