Private Museums Undergo Tax Probe

WASHINGTON, D.C. -- The Senate Finance Committee is scrutinizing nearly a dozen private museums opened by individual collectors, questioning whether the tax-exempt status they enjoy provides sufficient public benefit to justify what amounts to a government subsidy.

During Art Basel week, art collectors of Art Kabinett social media network will be visiting several Miami collections that are undergoing this tax probe.

Senator Orrin G. Hatch of Utah, pictured here, the committee’s Republican chairman, sent letters last month to small galleries like the Rubell Collection, the Brant Foundation Art Study Center in Greenwich, Conn., and Glenstone museum in Potomac, Md., as well as Eli and Edythe Broad’s new $140 million art museum in Los Angeles, asking for information about visiting hours, donations, trustees, valuations and art loans.

Republican committee staff members said the inquiry was part of a broader effort by Mr. Hatch to re-examine institutions, including museums and private universities, that have long enjoyed preferential tax treatment.

“Tax-exempt museums should focus on providing a public good and not the art of skirting around the tax code,” Mr. Hatch said in an email statement. “While more information is needed to ensure compliance with the tax code, one thing is clear: Under the law, these organizations have a duty to promote the public interest, not those of well-off benefactors, plain and simple.”

The Hatch letter noted that “charitable organizations have an important role in promoting good in our society,” but questioned whether “some private foundations are operating museums that offer minimal benefit to the public while enabling donors to reap substantial tax advantages.”

“Such an arrangement would be inconsistent with the letter and intent” of the law, it added.

Proliferation of 'Backyard Museums'

The letters were sent after an article in The New York Times earlier this year examined the proliferation of tax-exempt private museums created by wealthy art collectors, sometimes in their own backyards.

Some of the galleries severely limit public access, closing their doors to outsiders for several months at a time, shunning signs and advertisements, and requiring visitors to make advance reservations.

As investors have poured money into the skyrocketing art market, financial consultants and tax experts have said that many wealthy individuals are looking to convert their personal collections into private foundations or museums as a way of reducing their tax bills.

Founders can deduct not only the full market value of the art they buy, but also the value of cash and stocks they donate. The cost of insuring, conserving, warehousing, staffing, and other expenses associated with a masterwork’s upkeep are also tax-free.

Internal Revenue Service guidelines are vague when it comes to establishing the degree of public benefit that justifies an art institution’s tax-exempt status. But public access and adequate signage are both considered prerequisites, according to previous agency rulings. There are also strict restrictions on displaying the art in a donor’s own home.

Aaron W. Fobes, the spokesman for the finance committee, said the panel’s “concerns are confined to a small number of private foundations and are not something that is symptomatic of a larger problem in exempt organizations.”

Some tax experts have questioned whether some of the small, out-of-the-way museums that are on a donor’s property — like the Brant study center (founded by the newsprint magnate Peter Brant) or Glenstone (created by Mitchell Rales) — meet I.R.S. guidelines.

Philippa Polskin, a spokeswoman for Glenstone, said in an email that the museum was “gathering information in response to the questions sent by Senator Hatch and looks forward to sharing information with the committee about their efforts to build Glenstone into a world-class museum.”

Since the end of September, she said, “with future reservations already received, Glenstone is tracking toward a 12-month attendance of around 25,000 visitors.” She added that the number of visitors is expected to increase four- or fivefold when a planned expansion is completed.

Rubells Scrutinized

Other institutions that were sent a letter, like the Rubell Family Collection in Miami and the newly minted Broad museum, are on an altogether different scale, however.

The Rubells’ 45,000-square-foot contemporary art center, located in a former Drug Enforcement Administration warehouse in Miami, helped revitalize the surrounding Wynwood neighborhood when the family opened it in 1993. The center reports that tens of thousands of people visit the center every year.

Mr. Broad’s grand three-story museum, which opened in September, is one of the most ambitious ventures of its kind in recent decades. Mr. Broad, who has donated millions to other nearby cultural institutions, including the Los Angeles County Museum of Art and the Museum of Contemporary Art, has been active in transforming that stretch of downtown Los Angeles into a cultural hub.

Several well-established art institutions, like the Isabella Stewart Gardner Museum in Boston, the Frick Collection in New York, the Phillips Collection in Washington and the Barnes Collection in Philadelphia, grew out of a wealthy art collector’s private purchases.

Today's homepage Featured Art video visits the private home/'museum' of Connecticut collector, Peter Brant. http://www.youtube.com/watch?v=AlGQWF-JPvQ&sns=em