November 1, 2007 | Read Time: 2 minutes
Museum leaders’ efforts to persuade Congress to change a new law that limits tax deductions for donations of art might soon pay off.
Rep. Tom Udall, Democrat of New Mexico, and Rep. Phil English, Republican of Pennsylvania, have introduced a bill aimed at making it easier for donors to make partial gifts of art to charity. The bill also aims to satisfy regulators who believe many donors had been taking overly generous deductions for their gifts of art before tax laws were changed in 2006.
Until the Pension Protection Act of 2006 took effect, donors could pledge a portion of an artwork to a museum or other institution 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 let the museum 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 changed the law to require donors to relinquish ownership of the work within 10 years of making 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 instead of being adjusted each year to reflect any appreciation in the value of the piece.
As a result, donors who make gifts of art whose value has grown substantially get a far smaller write-off than they would under the old law.
The Association of Art Museum Directors says the number of donors who make so-called fractional gifts of artwork has dropped sharply. It cites one contemporary art museum that lost a fractional gift of 40 contemporary works as a result of the law changes, and another case in which a museum in Santa Fe, N.M., lost access to a tribal folk-art collection worth about $2-million.
The latest proposal by Mr. Udall and Mr. English attempts to strike a compromise.
The bill would require that institutions receive fractional gifts within nine months of the death of the donor and also require an Internal Revenue Service review of the value of donated gifts that are valued at more than $1-million.
