policy and advocacy

Issue Brief: Encouraging Charitable Gifts to Arts and Culture

Support America's Nonprofit Arts Organizations

ACTIONS NEEDED
We urge Members of Congress to:

• Enact legislation to make the IRA Rollover permanent, allowing individuals to roll funds from their Individual Retirement Accounts to charity, and to remove the arbitrary $100,000 cap.
• Cosponsor S. 548, the artist fair-market value deduction bill, which allows artists, writers, and composers to take a fair-market value deduction for contributions of their own works to arts organizations (see Artists’ Fair-Market Value Deduction Issue Brief), and soon to be introduced identical legislation in the House of Representatives.

TALKING POINTS
IRA Rollover:

• The IRA Rollover provision permits donors age 70.5 and older to make tax free charitable gifts directly from their IRAs to charities, up to an annual ceiling of $100,000. Before the IRA Rollover provision was enacted as part of the Pension Reform Act of 2006, individuals who wished to make charitable gifts from their retirement accounts had to withdraw funds and treat them as taxable income, reducing the amount available for donation to charity.
• The IRA Rollover spurs giving to all forms of charities and is supported by a broad coalition of organizations, including the arts, higher education, human services, health, and other nonprofits.
• The IRA Rollover is scheduled to expire on December 31, 2007. If it is allowed to expire, charities and the public they serve will suffer.
• Renewal legislation should make the provision permanent and remove the arbitrary cap of $100,000, which limits the generosity of those who are able to give.
• The legislation has bipartisan support, with chief sponsors Reps. Wally Herger (R-CA) and Earl Pomeroy (D-ND), as well as Sen. Byron Dorgan (D-ND).
• President Bush’s FY08 budget calls for permanent enactment of the IRA Rollover.
• Charities are collecting information to document the effectiveness of the new provision.

Artists’ Fair-Market Value Deduction Brief: Please see our separate Issue Brief on this topic.

BACKGROUND
In most other countries, governments are the sole provider of services in fields ranging from education to health care to arts and culture. The United States, by contrast, supports a private charitable sector that provides many of these services instead. There are over one million charitable organizations across the nation which receive crucial—but indirect—government help through tax benefits that encourage charitable gifts by generous individuals.

A charitable contribution is an act of private investment in a public purpose in which the return is not to the donor but to the public. Thus, donors and donees are not two halves of a special interest working to protect their particular tax break: rather, they are collectively working to enhance a public good, be it an arts program, a museum, library, or other nonprofit that serves public purposes, not private ones. The charitable deduction creates an incentive to give, but it does not eliminate the financial loss which donors experience when they make their gifts.

The above measures will encourage more charitable giving, including gifts of art as well as cash, which will strengthen arts organizations and allow them to provide more services to the public. They will encourage Americans to be as generous as possible rather than being limited by arbitrary caps and other restrictions. Moreover, such support helps keep access to the arts and humanities affordable for all segments of society, subsidizing thousands of programs and other activities that serve our citizens.

OTHER TAX ISSUES
Tax policy has multiple impacts on the arts and humanities at the local, state, and federal levels.  Below are descriptions of two arts-specific issues that are also worthy of congressional attention.

Fractional gifts: The Pension Protection Act of 2006 included a provision that severely limits donors’ ability to give a single gift of art (or a collection of art) over multiple years. Previously, a generous donor could give a gift in fractions over the donor’s lifetime. The donor was allowed to give fractions to a museum until the donor’s death and take a fair-market value deduction for each fraction as it was donated. The recipient institution had the right to take possession of the work for part of each year. The new law requires donors to give the entire gift within ten years and does not allow a fair-market value deduction after the first fraction is given.

By requiring that a gift be completed in ten years, and limiting its deductibility to a value no greater than the gift’s worth at the time of the first installment, the new law will cause donors to give fewer works of art to collecting and educational institutions. Senators Charles Schumer (D-NY) and Gordon Smith (R-OR) are working on legislation to amend the more draconian provisions of the new law.

Qualified Performing Artist tax benefit: Performing artists who satisfy three tests are allowed to deduct their expenses “above the line” on their tax returns, which is more advantageous than treating such expenses as itemized deductions. This tax benefit was originally enacted in 1986 and reflected the fact that many performing artists were poorly paid and that, absent some kind of help, they were unable to maintain themselves as working artists. It further recognized that artists faced significant expenses connected with gaining employment. One of the three tests mentioned above limits their allowable adjusted gross income to no greater than $16,000. This cap has been static since it was first enacted.

Senator Schumer is working on a bill that would bring the tax code into the 21st century by raising the income cap to $30,000 and indexing it to inflation. Performing artists should not have to live in abject poverty to qualify for this benefit. If this legislation is not enacted, artists will fall even further behind in their struggle to earn a living by their art, and the public will suffer their loss.

We urge Congress to support efforts to amend the Pension Protection Act fractional gifts provision and to fix the out-of-date Qualified Performing Artist benefit.