Artist Deductins

Linda Selvin, Executive Director of AAA send me an interesting NY Times opinion piece on the limited deductions artists make take for charitable donations of their work. Toward the end of the article is an interesting scenario, where it takes into account the recent Supreme Court decision on Citizens United and "symbolic speech", and the lack of artist destructibility might mean "a prohibited form of speaker discrimination".  The article notes, that the regulations could be changes by a court finding with an artist taking a full FMV deduction, and then challenge the IRS in court.  Certainly interesting.

The NY Times reports

Over the past year, as my friend Jim Rosenquist grew increasingly ill, I had the opportunity to sit with him in his loft in Lower Manhattan and discuss his life and concerns. About his place in art history as a pioneer of Pop Art painting, there was no discussion. What he did address was the future of art itself. He was worried about what would become of museums and art foundations — not because the public lacked interest in what they offered, but rather because the quality of those offerings, owing to federal legislation, was rapidly eroding.

When Jim died in March, I thought back to our conversations and began to look at the legislation he had mentioned, and that, in turn, led me to an unexpected place: Richard Nixon’s 1969 tax return.

That return had two problems. First, it deducted the value of a gift — the donation of Nixon’s vice-presidential papers to the National Archives — that was not actually made until 1970. Second, the value placed on that gift by Nixon was considered by many, most notably members of Congress, to be substantially inflated.

As to the first, Edward Morgan, the Nixon aide who signed the deed of gift on Nixon’s behalf, was indicted and sentenced to prison.

As to the second, Nixon was not alone: Concerns had been raised regarding the value of similar deductions taken by Lyndon Johnson and Hubert Humphrey. So Congress revised the tax code: Before 1970, writers, artists and composers could deduct the fair market value of the works they gave; after the revision, creators of donated works were limited to the costs of the materials that went into the work. Thus, the owner of a painting could donate it to a museum and deduct the painting’s full market value; but if that same work had been donated by the artist, the deduction would be limited to the costs of the paints and canvas.

The impact of the legislation was immediate — and catastrophic. Gifts by artists, writers and musicians to charitable institutions fell radically, and have never recovered.

The Museum of Modern Art, in the three years before the revision, received 321 gifts from artists; in the three years after the change, only 28 works were donated. The Library of Congress reported that contributions of manuscripts to the library fell from approximately 230 musical manuscripts and over 100,000 literary manuscripts annually to zero in 1971 and 1972. James Billington, the librarian of Congress emeritus, described the tax revision as the “single major impediment to developing the library’s graphic art holdings.” A study of the tax revision published in The Yale Law Journal concluded that the “virtual cessation of charitable giving by creators has become a fact of life for museums and university libraries nationwide.”

With recent escalations in art prices and cutbacks in public funding of cultural institutions, few museums can afford the market prices for major works of art and important manuscripts. Consequently, many are now sold to private collectors — and since many of these collectors now live outside the United States, it’s unlikely that the works will ever end up in an American museum or archive.

Legislation to restore the market value deduction to artists, writers and composers was just introduced in Congress, as similar bills have been proposed over the last decade. Jim Rosenquist had testified in support of those efforts. The current draft legislation incorporates protections to prevent the sorts of abuses that gave rise to the revision of the tax code, but the climate in Washington will make passage difficult.

Legislation, however, may no longer be necessary, and that hope comes from an unlikely source — Citizens United v. Federal Election Commission, the 2010 Supreme Court decision equating corporations with individuals for purposes of the First Amendment. Citizens United made explicit a current of constitutional law that focused on government restraints based on the identity of the speaker, rather than the subject matter of the speech.

The application of Citizens United is straightforward: Donations are a protected form of “symbolic speech” (such as gifts of money, and flag-burning), and the withdrawal of the fair market tax deduction from the creators of those works is — under the precedent of Citizens United — a prohibited form of speaker discrimination. The government would have to demonstrate a “compelling state interest” for removing the deduction — nearly impossible when attempting to justify the denial of the fair market value deduction to those who donate their own work to cultural institutions. All that needs to happen is for an artist who has donated work in this way to object to the I.R.S. over the denial of a fair market deduction; then the case would go to federal court. Easy, doable and should be done.

Returning the market value deduction to artists, writers and composers would encourage them to donate culturally and historically significant works to American museums. This would not only relieve those institutions and the taxpayers who support them of the cost of purchasing such works, but also free those institutions to spend money on programs devoted to education and building. An unanticipated consequence of Citizens United, but one that would have pleased my friend Jim.

Source: NY Times