policy and advocacy
Issue Brief: Artists' Fair-Market Value Deduction Bills
Protecting America's Cultural Patrimony
ACTION NEEDED
We urge Members of Congress to Cosponsor S. 548, the “Artist-Museum Partnership Act” offered by Senators Patrick Leahy and Robert Bennett in the Senate, and the identical bipartisan legislation soon to be introduced in the House.
TALKING POINTS
- Most museums, libraries, and archives have no acquisition funds; the only way to acquire new works is through donations.
- Living artists, writers, and composers—many of whom earn very little—have no financial 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 creators of original works 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; creators should have the same right when they donate their own works. It is only fair.
FREQUENTLY ASKED QUESTIONS
1. Why should a creator be able to deduct fair-market value for donating his work to a nonprofit organization, when a volunteer, offering pro bono services to the same institution, cannot deduct his time? The tax code provides that donations of tangible property are deductible while donations of volunteer services are not. In this case, the creator of a work of art would be claiming the deduction for the donation of property, not of services.
2. 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? No, 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. Non-artists would not have such income. In addition, material created purely for a deduction would unlikely be accepted by a library, archive, or museum. Museums, for example, 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.
3. 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 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 creator. 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 a problem.
BACKGROUND
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, essentially depriving Americans of their cultural patrimony. As a result of the 1969 repeal, works donated by artists to nonprofit institutions dramatically declined. Yet, while creators 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 creators of artistic works.
Senators Patrick Leahy (D-VT) and Robert Bennett (R-UT) have introduced S.548, the “Artist-Museum Partnership Act.” Rep. Jim Ramstad (R-MN) intends to introduce identical legislation—the “Artists’ Contribution to American Heritage Act of 2007” —in the House, as he and then-Rep. Ben Cardin (D-ME) did in the 109th Congress. The previous bills had broad bipartisan support, with more than 100 representatives and 20 senators signed on as cosponsors. The artists’ bill has passed the Senate five times, but has never come to a vote in committee in the House. In addition to the free-standing bills mentioned above, Senators Domenici (R-NM) and Schumer (D-NY) have introduced S. 374, which contains an identical provision.
When creators of artistic works 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.”
Cosponsors of S.548 (as of 2/16/07)
- Senator Robert Bennett (UT)
- Senator Maria Cantwell (WA)
- Senator Benjamin Cardin (MD)
- Senator Thad Cochran (MS)
- Senator Norm Coleman (MN)
- Senator Kent Conrad (ND)
- Senator Christopher Dodd (CT)
- Senator Pete Domenici (NM)
- Senator Richard Durbin (IL)
- Senator Dianne Feinstein (CA)
- Senator Edward Kennedy (MA)
- Senator John Kerry (MA)
- Senator Joseph Lieberman (CT)
- Senator Patrick Leahy (VT)
- Senator Bernie Sanders (VT)
- Senator Charles Schumer (NY)
Senator Ted Stevens (AK)