From the WSJ Opinion Archives
DE GUSTIBUS
Fractional Gifts
Having your art and selling it too.
This fall, the nation's art museum directors have been in a state of near panic over a surprise change in the tax laws that, they say, has curtailed their ability to build their collections.
Until the Pension Protection Act of Aug. 17, museums could entice donors with a fractional gift. A collector could give his Rembrandt a little at a time, say 20% each year, then take a tax deduction based on that percentage of its value every year for five years. The museum could show the painting for 73 days--20% of 365. If the value of the artwork went up from one year to the next, so would the deduction.
But the new law has changed the rules. Deductions no longer increase with value, but they do decline when value goes down. Also, the museum must take "substantial possession" of the object within 10 years. Otherwise the donor must refund his deductions, with interest, and pay a 10% penalty.
Dean Zerbe, senior counsel for the Senate Finance Committee, told the New York Sun in September that the law was changed to stop abuses. "Very wealthy people were taking huge deductions and keeping the art at their homes."
But one man's abuse is another's practical decision. Although entitled to hang a painting for a set period every year, curators might choose not to because it doesn't fit into their exhibition calendar. In any event, fractional gifts are more about the future than the present, locking in a donor's commitment during his lifetime so that the art doesn't go to a rival museum after the owner dies.
It's hard to judge what effect this change will have because there aren't any hard numbers to tell us how heavily museums rely on this form of incentive. "We're in the stage of gathering that information," says Millicent H. Gaudieri, executive director the Association of Art Museum Directors (AAMD).
That hasn't stopped her colleagues from going to the mattresses--lobbying Congress and issuing dire warnings about the imminent collapse of the nation's cultural life. Typical of the hysteria was the letter of Oct. 31 from James Cuno, the director of the Art Institute of Chicago, to the House Ways and Means Committee. He warned that the new law would "deprive the public of the opportunity to see great works of art," as if there was nothing on the Institute's walls already, or the museum had to close.
Moreover, museum officials claim they can build their collections only through tax-incentivized donations. "[I]n today's art market, museums cannot realistically expect to have the funds to purchase such major works on a regular basis," Mr. Cuno writes.
Er, not quite. They have other ways of doing so, like selling works they already own. Just last week the Albright-Knox Art Gallery in Buffalo, N.Y., announced that it was selling more than 200 objects from its collection to raise $15 million for the purchase of modern and contemporary art. "Deaccessioning," as the practice is known, used to be the tool of last resort for acquiring new art. But lately it's become the tool of first resort, with museums strip-mining their collections just to build a war chest. This has caused considerable alarm on the part of many museumgoers, but the directors of these institutions have argued that they are merely adhering to AAMD guidelines, which permit selling art in order to buy it.
In other words, museums are trying to have it both ways: benefiting from tax subventions because they supposedly can't survive in the marketplace yet stepping into the marketplace when they deem it appropriate. Deaccessioning isn't the only way museums are increasingly operating as commercial enterprises. They have restaurants and shops, and rent their spaces for gala events. Some are actually renting out parts of their collections. In 2004, the Boston Museum of Fine Arts lent some Impressionist paintings to the for-profit Bellagio Gallery in Las Vegas in exchange for a percentage of the (substantial) gate.
What's so disturbing about collection rentals and sales is that they violate the reason that museums are treated differently from businesses. Because of their transcendent importance, museum objects occupy a position outside the pressures of the marketplace. Yet more and more museums are treating these objects as financial assets that they can tap at any time. And the two professional bodies charged with oversight responsibility--the AAMD and the American Association of Museums--have been toothless watchdogs.
So here is a suggestion: When Congress reconvenes in January, it should agree to revisit the fractional gift provision of the Pension Protection Act as the museum directors are asking--but only as part of a full review of all museum business practices. The point would be to determine once and for all which method of sustaining these institutions is most in the public interest--one tied to philanthropy (and the tax code) or one tied to the marketplace.
Let's put an end to the current practice of mixing non-profit and for-profit. Since the museums won't police themselves, perhaps a little congressional oversight will get their attention.
