Why should collectors get all the breaks?

Artists seek similar tax incentives for donating works to museums and auctions

Many of America’s major museums have benefitted from laws that afford collectors tax breaks when donating works to institutions or charities, and now artists and their advocates are seeking similar compensation for works they gift.  

While collectors can write off the fair market value of works they donate to museums, artists can only claim for the costs of the materials they used to produce the work. “It seems to me there is a discrepancy in treatment there”, says Philippe Vergne, director of the Museum of Contemporary Art, Los Angeles. “What’s extraordinary is that artists keep giving. They give their time, they sit on boards, museums, schools. They are extremely generous.”

In an attempt to level the field, Vermont Senator Patrick Leahy reintroduced the Artist-Museum Partnership Act in April. The bill would enable artists to take a tax deduction on the fair market value of donated works, rather than just the cost of materials. “This legislation would preserve cherished art works for the public,” Leahy said in a statement. It would revive a policy that Congress reversed in 1969, amid suspicion that some artists were reporting inflated values.

That decision led to an immediate decline in the number of works donated by artists to museums. The advocacy group Americans for the Arts found that in the three years before the law changed, the Museum of Modern Art (MoMA) received 321 donated works from artists. In the three years after the law changed, it received only 28 works—a 90% drop.

“That artists cannot take a fair market value tax deduction for donated artworks is ridiculous,” says the New York dealer Cristin Tierney. “It hinders an artist’s ability to contribute to his or her community in a very basic way.”

Even if the Artist-Museum Partnership Act is enacted, it will apply only to donations by artists to public institutions, not to charity auctions—the volume and value of which have been growing rapidly. For example, the online auction company Paddle8 says it has more than tripled the number of benefit sales it hosts, from 73 in 2012 to 255 in 2014.

Artists are feeling pressured to give more works to benefit auctions. Tierney says her artists are frequently asked to donate works, “sometimes from institutions to which they have no connection. And these fundraisers seem genuinely surprised when we turn them down!”

In recent years, benefit auctions have realised huge sums. An Artists for Haiti auction in 2011 at Christie’s made $13.7m, while The 11th Hour wildlife benefit in 2013, organised by the actor Leonardo DiCaprio and Christie’s, raised $38.8m.

This is good for charity but can be risky for artists. At one end of the spectrum, works at charity auctions can end up being sold at a fraction of their market value, which could deflate artists’ prices. This is why some artists and dealers have begun demanding guarantees. “We never send anything without a reserve,” says Wendy Olsoff, a co-owner of PPOW gallery in New York.

At other times, buyers may overbid in order to lend support to the cause (and get a greater tax deduction), which potentially distorts the picture of artist’s markets.

Organisations and collectors are making moves to even the score. Paddle8 encourages the charitable organisations it works with to split proceeds with artists who donate works. “In addition to recognising that it’s a strain on an artist to continually donate, it often means that the artist provides a more important work—which in turn raises more funds for the non-profit organisation,” says a spokeswoman for the company. The Contemporary Art Museum St Louis adopted this policy at its 2014 benefit gala, and since then the “large majority” of donating artists have opted to split proceeds equally, according to a museum spokeswoman.

The New York collector James Wagner, who estimates that 30% to 40% of he and his partner Barry Hoggard’s collection came from benefit sales, suggests that speculation in artists’ markets could be curtailed if collectors were required to give some of the resale profits on works bought at benefit events to the charities and the artists. “Perhaps non-profits could agree on including some clause within the raffle ticket or auction purchase agreement which would help accomplish this,” he says.  

These market measures might be a faster route to remuneration for artists than waiting for Congress. Senator Leahy has introduced his Artist-Museum Partnership Act every year for the past 15 years and it has yet to go through.