This notion of "realising" income is what drives a lot of complexity and abuses in the American tax system (e.g. companies doing stock buybacks when it would be more efficient to pay dividends, except they're taxed differently). If income were as simple as "net worth at end of year - net worth at end of last year" that could remove a lot of that. (Bonus: income which goes back to society via consumption doesn't count, and so there's a natural progressiveness to this model: the money that you spend on living this year isn't taxed, only what you gained on top of that).

If your painting increases in value that's an indication that the amount of value that that painting could generate for the rest of society has increased, therefore the incentives should encourage you to sell it, not discourage you from doing so.

Of course, accessing the value of your painting is hard without a sale.

Unless you require people to voluntarily put a price tag on all their paintings (and other assets) at which they'd be forced to sell to any comer.

People with expensive paintings have them valued all the time for insurance purposes. I'm sure a truly dedicated fraudster would find a way, but it raises the cost of tax evasion even if it doesn't eliminate it entirely.