July 22, 2008
More on Fractional and Retained Interests
We have recently blogged stories relating to Congress closing the loophole provided to wealthy donors of fractional interests in artwork here, here, and here. Today's Wall Street Journal has another story (page D1) regarding the perceived need to loosen rules restricting art donations to museums passed in 2006. The article notes that art donations have almost dried up since the 2006 law was passed:
Jon and Mary Shirley used to give artwork by the likes of Jackson Pollock, Mark Rothko and Alberto Giacometti to the Seattle Art Museum. No longer. A federal crackdown on deductions for so-called fractional gifts of art has made donating too onerous for them. Before, the Shirleys could donate small stakes in their artwork to the museum over time and reap increasingly larger deductions as their collectibles appreciated. But Congress changed the rules nearly two years ago, capping those deductions. "There's just no point in doing it," says the 70-year-old Mr. Shirley, a former Microsoft Corp. executive. He says the couple has made no art donations to the museum since the rule change. Museum directors say these restrictions -- which limit tax breaks for givers -- have crimped donations of valuable collections. "Many of the significant gifts we've had in our history have come from fractional gifts," says Kaywin Feldman, the director of the Minneapolis Institute of Arts. "The new law has virtually stopped new fractional gifts from being started. It's a real problem for us and other museums."
The article notes that the Senate is likely to pass a law to revive fractional art donations while still preventing the abuse that led to the 2006 crackdown. The WSJ article provides a pretty good example of the proposed changes:
The Schumer-Grassley plan would ease some of these restrictions, but would add others, according to the people briefed on the negotiations. Collectors would once again be allowed to take bigger deductions over time as their art appreciated. But higher art values, for tax purposes, would be restrained by any deductions taken previously, under one option being discussed. For example, say a donor gave 10% of a painting valued at $100,000. For that initial gift, the donor could deduct $10,000. But when calculating the next deduction for a partial gift in a later year, the painting would be valued at only 90% of its fair-market value. If in the later year the market valued it at $200,000, the IRS would peg its taxable worth at $180,000. A collector would also be required to submit appreciated artwork valuations to the IRS's long-established art advisory panel for approval, the people familiar with the negotiations said.
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I believe that you need to further research this issue in that Kenneth Copeland Ministries has written both Senator Grassley and the IRS and requested that an IRS audit be performed. Senator Grassley did not, and apparently still does not, agree with this approach and has refused this request. I am a resident of Iowa and was a big supporter of Grassley but this apparently shows his true intent. The findings of an IRS audit must remain confidential while the findings of a Senate investigation do not. I can only conlude that Senator Grassley is more interested in the public release of these findings rather than in what the actual investigation/audit would show. With the IRS conducting the audit he still gets all the information he wants but must keep the findings confidential. Not so with the Senate investigation. It is hard to find fault with Kenneth Copeland Ministries in terms of this approach.
Posted by: Richard Cowart | Jul 22, 2008 7:53:42 PM