> If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right?

Nope. Think of it this way:

- you lobby government to make charitable donations tax deductible, meaning you can reduce your income by the stated value of the donation

- you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself

- No one will buy your painting for $20_000_000 USD, so it's not really worth that in the open market, but the art museum (in your backyard & founded by you) will give you a receipt stating the art is worth $20_000_000 USD

- Unless you reduce your income, your tax rate is 50%, so you donate the inflated art piece (to your art museum in your backyard), give yourself a receipt for the donation

- You attach that receipt to your tax return, lowering your taxable income from $A_LOT to $A_LOT minus $20_000_000, which at a 50% tax rate saves you $10_000_000 in taxes