Are charitable institutions established by the wealthy in danger of losing their tax-exempt status?
Many wealthy families enjoy sharing their art collections and supporting the arts through small museums that are supposed to serve to the public. Donors often enjoy huge tax breaks as a result of their contributions. Yet a recent investigation raises questions about whether the tax-exempt status of these organizations needs to be re-evaluated in light of the very limited benefit they offer the public.
Few Hours and Limited Public Access
The Finance Committee of the United States Senate has investigated the public access of eleven private museums to determine if, as required by tax laws, they “demonstrably serve and [are] in harmony with the public interest.” These museums include The Broad in Los Angeles, the Kreeger Museum in Washington DC, Miami’s Rubell Family Collection, and Connecticut’s Brant Foundation.
A Mixed Picture
While not disputing that the museums offer some public benefit, the committee report notes that some are open for as little as 15 hours a week, with a range of 15 to 55 hours overall.
They sometimes require reservations for visits, and these may need to be booked months in advance, policies that strongly discourage many visitors. Nine of the eleven do, however, provide free admission.
In many cases the founders of these museums have not actually transferred title their artwork to the museum. The pieces remain the property of the founder or are held in a separate foundation.
While some private museums have as many as 500,000 visitors annually, others have 5700 or fewer.
Public or Self-Benefit?
The report reflects well on some museums, showing that they do meet standards for receiving an exemption from federal taxation. But it raises questions about whether others are a vehicle for providing tax breaks to wealthy art owners without offering much to the public.
Future Tax Audits a Possibility
With the Senate focusing on this area of tax compliance, experts suggest that the IRS may now scrutinize the tax returns of private museums and might audit some.
Tax laws and regulations are complex, and charitable contributions are just one of many areas in which expert tax guidance can help taxpayers avoid running afoul of the rules. If you are concerned about whether your charitable donations may be disallowed or have another potential tax dispute, an experienced tax law attorney can advise you on how to proceed.
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