The Senate Finance Committee has recently set its sights upon nearly a dozen private museums opened and operated by individual collectors located all over the United States. The committee has begun scrutinizing and putting to question whether the tax-exempt status the museums enjoy “provides sufficient public benefit to justify what amounts to a government subsidy.”1 Republican Committee members led the charge, spearheaded by Utah’s Orrin G. Hatch, sending out letters of inquiry to smaller locations nationwide, including the Glenstone Museum in Maryland, the Brant Foundation Art Study Center in Connecticut, and the recently opened $140 million dollar Broad Museum in Los Angeles.2 The letters sought information regarding visiting hours, donations, trustees, valuations and art loans.3
These examinations are part of a broader effort on behalf of Republican committee members to take closer look at institutions – like museums, nonprofit theaters, and private universities – to determine whether or not they deserve the overt benefits of “preferential tax treatment.”4 This preferential tax privilege was created by 501 of the Internal Revenue Code (specifically, subsection (c)(3)), created by Congress.5
The chief concern of Republican lawmakers appears to be that instead of promoting the public interest in a manner deserving of the tax exemptions that these private museums benefit from, the museums are using the tax exemptions to promote the well-being of the wealthy benefactors instead.6 It is feared that donors may be reaping significant tax advantages by way of monetary donations. “Founders can deduct not only the full market value of the art they buy, but also the value of cash and stock they donate.”7 Furthermore, they’re able to write off the cost of insurance, conservation, upkeep and other expenses typically associated with the purchase and storing of expensive art, all tax-free.8 Art collecting as a form of investment has taken off dramatically in recent decades, with famous works continually upping auction values of pieces sold prior.
This fear is especially compounded by the proliferation of these private museums opened by wealthy collectors, often limiting public access by requiring reservations or shuttering doors entirely for months at a time.9 As of now, the Internal Revenue Service is nebulous as to a certain standard these private museums must rise to in order to qualify as “public goods.”10
Thus, the Senate may have the right mindset in assuming illicit intent on part of the owners and operators of these high-value private museum collections. Nonetheless, only time will tell whether or not the Senate Finance Committee is simply rattling sabers, or genuinely intends to crack down on wealthy American art collectors bent on circumventing the U.S. tax system.
Tax Status of Museums Questioned by Senators, N.Y. Times (Nov. 29, 2015), http://www.nytimes.com/2015/11/30/business/tax-status-of-museums-questioned-by-senators.html?src=me. ↩
The Broad Among Museums Questioned by Senate Committee, LA Times (Nov. 30, 2015), http://www.labusinessjournal.com/news/2015/nov/30/broad-among-museums-questioned-senate-committee/. ↩
N.Y. Times, supra note 1. ↩
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