WHEREFORE THOU ART # 47
Good News For Artists, Maybe

For many years I've been involved with a bunch of small not-for-profit art-oriented organizations. Organizations like the now sadly defunct Albany/Schenectady League of Arts and Pittsfield's Storefront Artist Project act as advocates and support systems for artists, providing opportunities for artists to show their work, locating studio spaces, or getting educational gigs, and generally acting as catalysts for the local artistic community.

Organizations like this typically run on a shoestring, and constantly scramble for operating funds from such things as cash donations, grants, and often, benefit events that feature the sale of donated artworks and performances for which the artists and performers aren't getting paid. This usually means that some of the poorest members of a community (the artists) are contributing the most to these civic organizations committed to the betterment of the community through artistic endeavor. It's amazing, distressing, or both, but my experience has been that struggling artists are the most generous philanthropists on the planet. And the small arts organizations often believe that they have no one else to turn to, other than to its own artists, for help raising money.

Of course, you could argue that these benefits provide opportunities for up-and-coming artists to be seen and heard in settings to which they might not ordinarily have access. You know, the old "it's great exposure!" argument, that every artist of every stripe has heard from somebody wanting the artist to just give it away. And sometimes, every once in a while, the exposure is a good thing, and a benefit auction showing leads to bigger and better things. But on the flip side, if a piece doesn't move in a benefit auction, or sells for a very low price (often a function of a badly-run auction), the artist's fledgling reputation (and fragile ego) can get bruised. And a benefit sale will often replace a full-priced one. As a wise man once said, people die of exposure.

Anyway, what has really been an absurdity in this situation is that the artist can't deduct the fair market value of a donated work to a not-for-profit organization. The best the artist can do was deduct the value of the materials, the actual costs of canvas, paint, etc. Apparently, Congress in the late '60's thought that artist donation-related deductions were being abused and limited tax deductions for self-made to the value of the materials. Of all the tax cheats out there to choose from, Congress decided to go after artists. And it's stayed that way ever since.

If, on the other hand, someone bought the painting from the artist and then donated it to a tax-exempt arts organization, this person would be able to deduct the fair market value of the painting. Even more ridiculously, while a living artist can't take a fair market value deduction on a donated work, after the artist's death, the artist's estate can. This inequity has led to bizarre schemes in which two artists trade works, and each then donate the other's work to an institution, and qualify for a tax deduction they couldn't have had if they had donated their own work.

Attempts to reverse the law have been floated in Congress for the last couple of years and this year, with new reality-based majorities in charge, it looks like it's going to have a shot at passing. It's called the Artist-Museum Partnership Act, and there are identical bills now in committees in both the House (H.R. 1524) and the Senate (S. 548).

The proposed law will amend current tax law "to provide that a deduction equal to fair market value shall be allowed for charitable contributions of literary, musical, artistic, or scholarly compositions created by the donor." In his message accompanying the introduction of the Senate bill, sponsor Senator Patrick Leahy described how the current law creates a great disincentive for artists to charitably donate their works, and how countless opportunities for public institutions to acquire great works have been squandered, for no good reason. Senator Leahy points out that Igor Stravinskyhad apparently long planned to donate his private papers to the Library of Congress, but when the law changed in 1969 he decided he could do much better financially by selling them to a private institution in Europe.

I like the proposed law; there are some serious problem areas, though. For one thing, donated works must be less than eighteen months old to qualify for the tax deduction. I'm not sure who thought this was a good idea, but it has to change. Using Stravinsky as an example, I'm not sure his private papers during eighteen months in the late 1960's would be nearly as valuable (or interesting) as those from, say, the 1910's or 1920's. To be sure, the proposed law sure doesn't fix the Stravinsky problem raised by Leahy to justify the bill. The vast majority of Stravinsky's stuff would not be subject to the deduction. The eighteen month limitation seems like an artificial barrier with little to recommend it. Are we worried that artists will unload older non-selling works? Oh really? Not trusting the artists again? I thought we were getting over that.

The other problem is that the proposed bill may not apply to my artists that donate works for benefit auctions. The donatee (the organization accepting the donation) has to verify that the donated work will be used "in relation to the purpose or function" of the organization. Now, I don't know what that means, either, but Senator Leahy, in describing this requirement, said "[f]or example, a painting contributed to an educational institution must be used by that organization for educational purposes and could not be sold by the institution for profit."

Again, this would appear to severely limit the application of the law for no good reason. So the organization can never, ever, ever sell the work? Does that make sense? And if it does, what happens then? The artist has to file an amended tax return, essentially giving back the deduction? Maybe 20 years later? This sounds manifestly unworkable. And as a general matter, if a work is sold by the organization and the proceeds are used, as they must, to further the organization's mission, then isn't the requirement satisfied?

All in all, it looks like the overriding justification for the law that Leahy espouses, to get more works displayed in public and not-for-profit institutions, is a little off the mark. The justification should be to treat artists fairly, and let them justly benefit from the fruits of their genius and craft. Just like regular people do with their work.

© 200 Paul C. Rapp
This article originally appeared in The Artful Mind, and is intended to provide the reader with an awareness of copyright law and not legal advice.