Collectors Lose Deduction, Museums Lose Donations
Museums and would-be art donors are taking it on the chin. In late August, President Bush signed a provision attached to the Pension Protection Act that puts new limitations on the giving of fractional gifts. (Gnarly details here.) Before the addition of this provision, donors were not required to part with the donated work of art at a particular time, and tax deductions could be extended over a number of years. Each year, an institution would gain a larger portion of the given item. Art collectors and donors enjoyed the open-endedness and flexibility of fractional giving because it enabled them to take advantage of the tax deductions that come with charitable giving without having to fully give up a cherished object before a time of their choosing.
Now, however, donors are required to entirely turn over ownership of an object within ten years of making the donation—otherwise, the tax deductions must be repaid and donors will be charged a penalty.
In addition to this, all tax deductions taken over the ten-year period must be based on the value of the work of art at the time it was given. So as the monetary value of that lovely Monet increases, the tax deduction will remain as it was on the day the fractional gift was made.
A recent article in Maine Antiques Digest quotes Ralph Lerner, a Manhattan estate lawyer, saying that because of this change, he will no longer advise clients to make partial gifts. He was even more emphatic to the ArtNEWS newsletter: “It’s moronic. Anyone who makes a fractional gift now should have his head examined; anyone who advises a client to do a fractional gift is guilty of malpractice.”
His reasoning? Because collectors would end up losing money as well as the work of art. And who wants to do that?
Republican Iowa Senator Chuck Grassley promoted this new provision because of his concern that wealthy art donors could benefit from tax deductions while never making the given work of art available to the public. Ironically, one could argue that this provision will disincentivize collectors from donating to museums at all, and will send more artworks to the auction block instead. And since museum’s laughably miniscule acquisition budgets make them completely reliant on such gifts in order to acquire high-quality examples, this provision seriously handicaps their ability to build strong collections that will educate and inspire the masses in perpetuity. Did the good senator realize that he might very well be helping doom our museums to mediocrity? -D.L.
