July 10, 2008

Lawmakers Discuss Changes to Rules Governing Some Gifts of Art

Staff members for Sen. Charles E. Grassley, of Iowa, say some key members of the Senate Finance Committee are discussing possible legislation that would loosen some of the tax rules associated with donations of art.

But they said that an agreement on the issue was not as far along as an article in today’s The New York Times suggests. Mr. Grassley and Sen. Charles Schumer, of New York, are still considering how that legislation would look, they said.

The discussions center around a part of the Pension Protection Act of 2006 that tightened the tax rules for partial gifts of artwork to charities.

Before 2006, donors could pledge a portion of an artwork to a museum or other institution over many years, write off a percentage of its value each year, and keep the work in their possession until they died — as long as they let the museum display it periodically.

But many critics said the old law was an easy target for abuse and allowed donors to receive substantial tax breaks without giving up ownership of their artwork until after they died.

To deal with that issue, Congress changed the law to require donors to relinquish ownership of the work within 10 years of making such a gift. In addition, the amounts donors can write off are based on the value of the work at the time it is pledged instead of being adjusted each year to reflect any appreciation in the value of the piece.

As a result, donors who make gifts of art whose value has grown substantially get a far smaller write-off than they would have under the old law.

Lobbying Effort

Museum groups such as the Association of Art Museum Directors have since been lobbying Congress to loosen the restrictions, which they say have significantly reduced the number of donations to their collections.

Based on that pressure, Mr. Schumer and other lawmakers — including Rep. Tom Udall, Democrat of New Mexico, and Rep. Phil English, Republican of Pennsylvania — have been pushing to ease the restrictions.

Recently, Mr. Schumer, a Democrat, has been working with the office of Sen. Grassley — the ranking minority member of the Senate’s Finance Committee — to craft new legislation that would give donors greater flexibility while also putting restrictions in place that would prevent donors from inflating the value of their gifts for tax purposes.

“There was a clear-cut case for the 2006 reforms,” Mr. Grassley said in a written statement. “Any changes being looked at right now, and that process is far from over, also must work to stop the rich and powerful from hanging onto their art at taxpayer expense.”

Mr. Grassley said his office is pushing language that would require donors who want deductions for partial donations to submit the valuations of their donations to the Internal Revenue Service for independent review.

Another change would require charities to take possession of donated materials for a set amount of time before a donor could claim a deduction.

The New York Times story said Mr. Schumer is working to extend the amount of time in which full ownership of a donated work must be turned over to a charity. Currently the charity must take full ownership within 10 years of the pledge.

Mr. Schumer is pushing to extend that window to 20 years.