policy and advocacy
Issue Brief - Artists' Fair-Market Value Deduction Bills
Protecting America's Cultural Patrimony
We urge Members of Congress to:
- Cosponsor the Artists’ Contribution to American Heritage Act of 2005, offered by Reps. Jim Ramstad and Ben Cardin in the House, or S. 372, the Artist-Museum Partnership Act offered by Senators Robert Bennett and Patrick Leahy in the Senate. (As of February 14, 2005, the House bill was not yet numbered.)
- Most museums, libraries, and archives have no acquisition funds; the only way to acquire new works is through donations.
- Living artists - many of whom earn very little have no incentive to give their works to a nonprofit institution; instead works of local, regional and national significance are sold into private hands and never come into the public domain.
- The artists’ fair-market value deduction bill would allow artists to take a fair-market value deduction for self-created works given to a nonprofit institution.
- Collectors have the right to deduct the fair-market value of gifts of works of art that they donate, and the artists should have the same right when they donate their own works. It is only fair.
FREQUENTLY ASKED QUESTIONS
- Why should an artist be able to deduct fair-market value for donating his work to a museum, when a lawyer, offering pro bono services to the same institution, cannot deduct his time? A lawyer is paid for services, which may be embodied in a document, like a brief, but that’s a by-product – the physical brief has no value in advancing the mission of an institution. On the other hand, an artist produces and donates a tangible asset. The IRS provides that taxpayers may deduct fair-market value for donated goods used to advance the mission of a qualified charity.
There is also a distinction between the benefits to society derived from publicly available art, which Congress acknowledges, and the value of services, which it has not acknowledged.
- Isn’t there a danger that this bill will encourage people to create art in order to donate it to some institution for personal financial gain? Only a relatively small number of people would be eligible under this bill, since all deductions must be claimed against income earned from artistic activity. Nonartists would not have such income. In addition, material created purely for a deduction would unlikely be accepted by a museum because most museums reject over 90 percent of what is offered to them because of quality, incompatibility with the collection, cost of preservation and storage, or a belief that the work will never be shown or studied.
And finally, even if people were to create such works, few institutions would be able to accept them, since the institution must have an IRS 501(c)(3) status, be incorporated, have articles of organization, and file annual reports with the IRS. Scamming the system would not be easy.
- Since art is so subjective, won’t it be difficult to establish a fair evaluation? For over 30 years the application of existing law as applied to collectors demonstrates that deductions do not lead to misevaluation. For gifts over $5,000, taxpayers must obtain a “qualified appraisal” to substantiate the amount of the proposed deduction.
Knowledgeable individuals provide written appraisals to taxpayers claiming a deduction, and the IRS, when conducting audits, uses panels of experts – The Art Advisory Panel - to review those appraisals to assess whether they are reasonable. Appraisals cannot be delivered on a whim: they must take into account the actual, objective record of free market sales of similar work by the artist. Reasonable people can disagree on an exact number, but a true misevaluation is relatively easy to spot. The definition of a “qualified appraisal” is strict and the sanctions are severe. The IRS's long history with this specific issue suggests that arriving at a legitimate value for donated material is not be a problem.
In 1969, Congress repealed legislation allowing artists, writers, and composers to take a fair-market value deduction for their works donated to a museum, library, or archive. This essentially deprived Americans of their cultural patrimony. As a result of the 1969 repeal, works donated by artists to nonprofit institutions dramatically declined. Yet, while artists can no longer donate works for a fair-market deduction, collectors who own those works can take the fair-market value deduction when they donate to a nonprofit institution. The repeal of the 1969 legislation puts an unfair tax burden on artists.
Senators Patrick Leahy (D-VT) and Robert Bennett (R-UT) have introduced S. 372, the “Artist-Museum Partnership Act.” As of February 14, 2005, Reps. Jim Ramstad (R-MN) and Ben Cardin (D-MD) intend to introduce the “Artists’ Contribution to American Heritage Act of 2005.” The bills are identical to each other, as well as to those that were introduced in the 108th Congress. The previous bills had broad bipartisan support, with more than 100 representatives and 20 senators signed on as cosponsors. The artists’ bill has twice passed the Senate, but has never come to a vote in committee in the House.
In March 2003 the Joint Committee on Taxation estimated the artists’ bill would cost $59 million over 10 years (the latest figure available) – a mere pittance in terms of the U.S. budget.
When artists do not have the same incentive to donate that other taxpayers enjoy, our heritage is often sold abroad or goes into private collections. For example:
- The Museum of Modern Art in New York received 321 gifts from artists in the three years prior to the repeal; in the three years following repeal the museum received 28 works of art from artists – a decrease of more than 90 percent.
- The biggest loser was the Library of Congress, which annually received 15 to 20 large gifts of manuscripts from authors. In the four years after repeal it received one gift.
- Dr. James Billington, Librarian of Congress, says “The restoration of this tax deduction would vastly benefit our manuscript and music holdings, and remove the single major impediment to developing the Library’s graphic art holdings. [The] bill would also benefit local public and research libraries. When this tax deduction was allowed in the past, many urban and rural libraries profited from the donation of manuscripts and other memorabilia from authors and composers who wanted their creative output to be available for research in their local communities.”