Tax Code Hampering Art Donations
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Jim Vescovi 212-854-4937
October 4, 2007 (NEW YORK) - While donating artwork is generally viewed as the purview of the rich, these transactions have a significant effect on the public’s access to great works of art, according to experts on a panel titled Treasures and Taxes: The Unlikely Intersections of Art and the Tax Code, held on October 1 in Jerome Greene Hall. The Kernochan Center for Law, Media and the Arts sponsored the event.
In a panel convened to discuss how provisions of the Internal Revenue Code affect the nation’s exempt organizations, some of the most preeminent leaders in the field discussed recent changes to the Code as well as other issues facing artists and collectors.
August 2006, Congress amended the Code, significantly altering the requirements for an estate-planning method called fractional giving. Fractional giving involves a collector donating a work to a museum over a period of time, retaining control over a portion of the work while allowing the museum the undivided right to the remaining portion. For example, a collector may donate 50 percent of the interest in her painting, giving a museum the right to display the art half the year. The collector gets a tax deduction equal to half of the painting’s fair market value. Additional percentages can be donated and additional breaks taken over the years until the museum retains full rights in the work.
The Pension Protection Act mandated, among other things, that the entire gift be completed within 10 years, essentially ending the fractional giving practice. As a result, fewer people want to donate, museums have a harder time acquiring art and the public misses out on great works, the panelists said.
“With fractional gifts, you’d get an entire collection and that was important for a museum,” said panelist Sarah Geelan ’97, associate general counsel at the Solomon R. Guggenheim Foundation. “Say [a donor has] an extensive collection of Korean ceramics -- you want all 250 pieces, not just one or two a year.”
Another issue the panel addressed was the deduction artists receive when donating their own works to exempt organizations. Currently, an artist who donates his own art can deduct only the cost of materials such as brushes, paint and canvas, even if the art is worth millions of dollars.
Bills that would give artists larger deductions have passed the U.S. Senate four times, but have never gotten through in the House, said Anita Defanis, co-director of government affairs for the lobbying group, the Association of Art Museum Directors. The bill is not only about helping artists, but also is about bringing more art to the public, she said.
While large, well-endowed museums will benefit from the legislation, “this is not a bill for big museums,” she added. “Small museums have no budget for acquiring art,” so they must rely on donations. She cited the example of a respected New York artist who could not afford to donate her work to Iowa ’s Cedar Rapids Museum of Art, which, subsequently, could not afford to buy it.
“These works now will never see the light of day for the public to enjoy,” Defanis said.
Panelist Daniel Hoffman, an author and editor of more than 25 books of poetry and non-fiction, said there are problems even with the current bill. In it, artists are required to take the fair-market value deduction based on their current artistic income. Many artists decide to donate their works and papers late in life when their careers are “trailing off,” he said, or they may donate their works in bits and pieces over a period of years, scattering them to different museums. The result, he added, is that scholars have a more difficult time gaining access to these materials.
“I’ve written books on Yates, Poe and Robert Graves,” he told an audience of 30 people. “I know firsthand the necessity of access to primary sources if our cultural heritage is going to be handed down.”