Tax Breaks for Private Art Museums Under Scrutiny

Thanks in part to skyrocketing prices and the growing number of collectors who buy art as an investment, tax-exempt private museums — sometimes in out-of-the-way locations and with strictly limited public access — have proliferated in the last decade, even as concerns about growing inequality have heightened criticism of government policies that seem to favor the wealthiest segment of society, the New York Times reports.

The country’s network of museums relies on a tax code that encourages wealthy collectors to share their art instead of keeping it tucked away in their homes or in storehouses. And while in some notable instances — the Barnes Foundation, now in downtown Philadelphia; the Frick Collection in New York; and the Phillips Collection in Washington — private collections have evolved into cherished public institutions, for most art lovers, dealers, museum professionals, and scholars, a tax system that encourages donations of arts, curated exhibitions, and a wider appreciation of the esthetic value of art is an article of faith.

So the fact that some collectors appear to be exploiting a loophole in the tax code to establish private museums that enable them to keep their collections under wraps while collecting generous tax breaks is troubling to many in the field. One of them, Robert Storr, dean of the Yale School of Art, told the Times that any public forgiveness of taxes should be accompanied by a clear public benefit, and that the definition of "public benefit" should not be left to the discretion of the person who established the museum. Others argue that the term "public benefit" is subject to broad interpretation. The Brant Foundation Art Study Center in Greenwich, Connecticut, for instance, has organized traveling exhibitions, sponsored lectures, and hosted educational workshops for children, but the center and the collection it houses is open to the public sparingly and by appointment only.

Although there are no verifiable records on the exact number of private art museums and foundations in the United States, art advisors and tax experts who deal with wealthy collectors say the total is increasing. In part, the popularity of private museums is related to the booming art market, which, according to the European Fine Art Foundation, has seen auction prices of fine art in the U.S. double since 2009. At the same time, donations of fine art to established museums remains commonplace, though a change in the tax code in 2006 disallows collectors from receiving a tax break for donating art to a museum while keeping it in their homes while they are alive.

Nevertheless, some argue that private tax-exempt museums, where the care, conservation, and insuring of artworks, along with the design and construction of exhibition and storage spaces, can be written off as expenses, ultimately fulfill a long-term public good. "I don't think that's something that’s abusive," Ralph E. Lerner, author of Art Law: The Guide for Collectors, Investors, Dealers, and Artists, told the Times. After collectors die, Lerner added, the art can become more firmly situated in the public realm, as was the case with the Frick collection and the Isabella Stewart Gardner Museum in Boston. "If you take the long view, I think it's good for the arts."

Patricia Cohen. "Writing Off the Warhol Next Door." New York Times 01/10/2015.