Bill Would Loosen Rules for Donations of Artwork

Museum leaders’ efforts to persuade Congress to change a new law that limits tax deductions for donations of art might soon pay off.

Two lawmakers on Wednesday plan to propose legislation to soften the sting of the new legislation, which was passed in 2006 as part of the Pension Protection Act.

Rep. Tom Udall, Democrat of New Mexico, and Rep. Phil English, Republican of Pennsylvania, say the bill they will introduce tomorrow would make it easier for donors to make fractional gifts of art to charity while also satisfying regulators who believe many donors had been receiving overly generous deductions for their gifts of art.

Before the Pension Protection Act of 2006 took effect, donors could pledge a portion of an artwork over many years, write off a percentage of its value each year, and keep the work in their possession until they died — as long as they allowed the museum to display it periodically.

But many critics said the old law was an easy target for abuse and allowed donors to receive substantial tax breaks without giving up ownership of their artwork until after they died.

To deal with that issue, Congress now requires donors to relinquish ownership of the work within 10 years after they make such a gift. In addition, the amounts donors can write off are based on the value of the work at the time it is pledged, not its value when the institution takes full possession of the piece.

As a result, donors who make gifts of art that have grown substantially in value are getting a far smaller write-off than they did under the old law.

That small write-off is making a difference: officials from the Association of Art Museum Directors say that the number of donors who make fractional gifts has dropped sharply.

The latest proposal by Mr. Udall and Mr. English attempts to strike a compromise.

The bill would require donors to complete their fractional gifts within their lifetimes and require an Internal Revenue Service review of the value of donated gifts that are valued at more than $1-million.