With Private Museums, Collectors Can Have Their Art and Eat it Too
by Chris Helsel
A recent surge in the value of art, and the resulting trend toward art as an investment, have given rise to a vast increase in the amount of private museums in the United States. Observers worry, however, that these museums and foundations serve primarily as tax shields, and provide little to no public benefit.
According to Bard University curatorial studies executive director Tom Eccles, in the past 10 to 15 years, art has become "an equal asset class to stocks, boats, houses and jewelry, and people don't want to give their assets away." As a result, collectors have increasingly begun to establish their own tax-exempt foundations or museums. Traditionally, a philanthropic collector might donate a piece to an established museum or foundation. This would fully relinquish the collector's power over the piece and reward the collector with a tax deduction.
However, the prospect of establishing a private museum, and then "donating" art to it, allows a collector to enjoy the accompanying tax benefits while still maintaining control over the art. While the art ceases to be the collector's private property, he or she can control it through a foundation and be eligible for annual tax write-offs. Further, the nonprofit foundation can write off the cost of conserving, caring for and insuring the art, and nonprofits' art purchases are exempt from state and local tax laws.
What's more, many of these private museums are housed in buildings adjacent to the homes of the collectors and are only open to the public on a very limited basis. This has raised suspicion among some in the art and tax-collecting communities that some collectors are more interested in tax-avoidance than in sharing their art with the public.
While private museums are certainly legal, the I.R.S. requires that a tax-exempt nonprofit be both educational and accessible to the public. Some private museums, such as the Brant Foundation Art Study Center in Greenwich, CT, toe the line on this issue. The Brant Center, for instance, is completely unmarked, with no street signs, and allows visits by appointment only. It is located down the street from its creator's estate.
Robert Storr, dean of the Yale School of Art, echoes the sentiments of many: "If there's to be public forgiveness for taxes there should be a clear public benefit, and it should not be entirely at the discretion of the person running the museum or foundation."
I.R.S. guidelines about what private museums must do to qualify for tax-exempt status are unfortunately vague, though experts agree that public access and educational benefit are crucial. I.R.S. memoranda indicate that public access alone is not sufficient, and that the foundations must have adequate signage and/or advertise. Marcus Owens, an attorney and former director of the I.R.S.'s Exempt Organizations Division, said the agency also considers the physical location of a museum in order to determine whether the art is still primarily for the benefit of the owner, rather than the public. In the 1980s, one bold collector claimed tax-exempt status for sculptures near his backyard pool and said they were open for public viewing. His charitable designation was revoked in 1987.
However, critics contend that the I.R.S. rules are not strong enough. Tax experts note that private foundations can qualify for tax-exempt status without letting in a single visitor, if they lend out works, give grants or make their collections available to researchers.
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