Senate Concludes Private Museums “Should Do More” to Merit Tax Exempt Status

An investigation into whether private museums are benefitting their founders more than the general public steered by the US Senate Finance Committee concluded that many private museums “should do more,” Julia Halperin of the Art Newspaper reports.

Last fall, the committee sent a letter to eleven museums established by collectors inquiring about opening hours, attendance, and the role of the founders in their daily operations. On May 17, Orrin Hatch, a Republican senator and chair of the committee, gave a summary of the results of this inquiry to the Art Newspaper. Hatch said, “Despite the good work that is being done by many private museums, I remain concerned that this area of our tax code is ripe for exploitation.”

The private museums surveyed by the committee include the Brant Foundation Art Study Center, The Broad, El Segundo Museum of Art, Fisher Landau Center for Art, Glenstone, Goss-Michael Foundation, Hall Art Foundation, Kreeger Museum, Linda Pace Foundation, Pier 24, and the Rubell Family Collection.

The committee found that while many private museums have free admission, such as Los Angeles’s The Broad, which was visited by 500,000 people since it opened in the fall, many others “require reservations made weeks or months in advance, thereby effectively narrowing the visitor pool to a small group of patrons.” Other concerns include open-by-appointment-only policies and out-of-hours access to collections.

Collectors who establish museums that are granted tax exempt status can enjoy having full control over their works and the ability to deduct the fair-market value of art donations from their taxes—which enables them to reduce their taxable income by as much as 50 percent each year—but they must prove that the public benefit is sufficient enough to earn that status.

A professor at the University of Miami School of Law, Stephen Urice, said that the Senate’s findings are a “helpful shot across the bow” to warn collectors that “there are rules and limitations on what you can do once you’ve transferred your assets to a private foundation.”

Experts say that many private museums will be more closely monitored and should expect to be audited by the IRS in the near future.