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Tax Law Too Lax? IRS Receives Results of Private Museum Investigation

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The Kreeger Museum (photo via Flickr/bobistraveling, used under CC BY 2.0 license)

Last November, Senate Finance Committee chairman Senator Orrin G. Hatch (R-Utah) sent a letter to the founders of 11 private museums across the US to investigate whether the institutions operate in a way that benefits the public enough to warrant receiving tax-exempt status. They included those in charge of The Broad in Los Angeles, the Kreeger Museum in the nation’s capital, the Rubell Family Collection in Miami, and the Brant Foundation in Connecticut. Such museums, as dictated by law, must “demonstrably serve and be in harmony with the public interest,” but Hatch expressed concerns that private foundations provide minimal public services while their donors enjoy huge financial breaks. We now have the results of his inquiries, summarized in a letter Hatch sent to Internal Revenue Service (IRS) Commissioner John Koskinen. In it, Hatch also calls on the IRS to detail its positions on private museums and what it intends to do to make sure they have “sufficient guidance” to properly continue their operations.

Hatch’s summary  — a copy of which Hyperallergic received — revealed that while many of the surveyed private museums do “good work,” he remains concerned that the nation’s tax code in its current form is not tight enough to prevent exploitation. Chiefly, some museums do not make their collections readily available to visitors while some of their founding donors hold active roles in the institutions’ managements.

“These factors alone are not cause for revoking tax-exempt status or imposing tax on self-dealing,” Hatch writes, “but they do raise questions about the nature of the relationship between the donor and museum that perhaps merit further scrutiny.”

The Rubell Family Collection (photo by Hrag Vartanian for Hyperallergic) (click to enlarge)
The Rubell Family Collection (photo by Hrag Vartanian for Hyperallergic) (click to enlarge)

In terms of public accessibility, Hatch notes that the operating hours and schedules of the 11 museums, according to numbers from the past five years, vary widely. On average, museums were operating, for each of the five examined years, between 768 to 2832 hours, which, when divided over 52 weeks, equate to a range of just 15 to 55 hours per week. Some museums reported closing for weeks or even months while installing exhibitions. The numbers reflecting the hours open per week during operating periods were as little as 20 — which arrives from the Linda Pace Foundation in San Antonio, Texas (Hatch’s summary of responses does not explicitly tie any response to a specific institution, but it’s not difficult to identify some of them).

Several of the museums also require advanced reservations, at times needed weeks or months in advance, which would likely inconvenience many potential visitors. The Brant Foundation and San Francisco’s Pier 24, for instance, are open by appointment only from Monday through Friday; Maryland’s Glenstone, open four days a week, also requires that visitors make reservations. The Hall Art Foundation in Vermont is perhaps the least welcoming for a spontaneous museum trip: its website states that it is open seasonally from May through November, on weekends and Wednesdays, and only by appointment — which are available only at 11am, 1pm, and 3pm.

Though some collections are not readily accessible, nine of the museums do boast free admission — the Rubell Family Collection and the Kreeger Museum require entrance fees. According to Hatch, some of these private museums do welcome as many as 500,000 annual visitors; four of those surveyed said the average number of visitors over the past five years was 5,700 or less. Others “have steadily increased their attendance.” On top of building on-site attendance, the summary shows that institutions are working toward making their artworks available in other ways. Ten of them have active loan programs or have previously loaned artwork to museums in the US or around the world, and many of these, such as Glenstone and the Brant Foundation, do readily publicize this information online. Other museums are taking steps to digitize their collections for display on the internet.

The Linda Pace Foundation (photo by Allison Meier, used under CC BY-SA 2.0 license)
The Linda Pace Foundation (photo by Allison Meier, used under CC BY-SA 2.0 license)

Hatch also asked the museums how they obtained their artworks. He received a range of responses that included information that they arrived through donations from founders or family foundations, through gifts from artists, through long-term loans, and through direct purchases. A number of institutions surveyed said they obtained all, or most, of their art from a single founding donor or family.

“It appears that some founders of private museums retain control of artwork displayed in the museum,” the chairman writes. “However, in each of those cases, title of the artwork has not passed to the museum; instead, it is either retained by the founder or held by a separate foundation.”

Several museums, Hatch adds, also indicated that their donors who provided over 5% of their collections currently oversee museum operations, holding roles as either president or a board member. While some museum properties are owned by the museum, the municipality, or a related foundation, some donors do own the land on which the buildings stand or even live next-door.

Hatch also posed questions about various transactions. None of the museums said they have accepted restricted gifts, although he notes that “only a few have a policy against doing so.” Additionally, none indicated that they had loaned a donated artwork back to the donor. In terms of community outreach, seven of those surveyed have awarded grants. These range from awarding one grant over the past five years to handing out annually recurring grants; one museum said it had awarded grants to over 75 tax-exempt organizations that amounted to more than $3 million.

Hatch’s investigation is part of an effort to strengthen areas of the tax code as Congress gears up for comprehensive tax reforms. As his report indicates, while some private museums do meet the standards to receive exemption from related federal taxes, some may be using loose laws for self-benefit. According to the Art Newspaper, experts say the IRS is likely to examine the tax returns of these private museums and may even conduct audits on some of them.

Editors note: A previous version of this article incorrectly stated that Glenstone is open only three days a week when it is, in fact, open for four days.

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