The Billionaire’s Treasure Trove: A Call to Reform Private Art Museums and the Private Benefit Doctrine
E. Alex Kirk*
Note

  The full text of this Article may be found here.

27 Fordham Intell. Prop. Media & Ent. L.J. 869
Note by E. Alex Kirk*

ABSTRACT

[T]

hanks to the new generation of billionaire art collectors, and the recent boom in the art market, a growing number of high-net-worth patrons are creating their own tax-exempt private art museums. These “jewel-box” museums provide invaluable public benefits, lead to growth and innovation in the private museum sector, and encourage donors to pursue more avant-gardes collecting strategies. This advantageous tax-saving strategy appeals to wealthy individuals, who wish to maintain control over their art collection, and still receive generous charitable income tax deductions. However, several private museums have recently come under fire due to private benefit concerns. To qualify for federal tax exemption under section 501(c)(3) of the Internal Revenue Code, a private museum must serve public rather than private interests. Ambiguity in the regulatory scheme has allowed some high-net-worth individuals to exploit loopholes in the tax law, which is silent on how these private museums should comply with the public benefit requirement, and the types of activities that constitute substantial, and therefore, impermissible private benefits. The tax law is structured to incentivize charitable giving: Taxpayers can write off the cost of maintaining their art collections, subsidize the cost of newly purchased artworks, and leave behind a lasting philanthropic legacy. It is practically impossible for private museums to not provide some sort of private benefit. This Note proposes to reform the limitations on private benefit with flexible guidelines that allow for involvement during the donor’s lifetime, provide these organizations with enough autonomy to carry out their unique charitable vision, and encourage charitable giving. Private benefit should continue to be assessed on a case-by-case basis, in consideration of the organization’s available resources, size, and funding. Any updates in the regulatory scheme should not foreclose on these charitable deductions altogether, and should be narrowly tailored to prevent only those activities with substantial enough private benefits to justify the revocation of their tax-exempt status. Private museums that encourage public engagement with the arts and provide meaningful public benefits should still be entitled to tax exemption, and benefit from insubstantial nonexempt activities that effectuate their overall charitable purposes.

*Editor-in-Chief, Fordham Intellectual Property, Media & Entertainment Law Journal, Volume XXVIII; J.D. Candidate, Fordham University School of Law, 2018; B.A., Art History, Columbia University, 2011. The author would like to thank Professor Linda Sugin for her guidance and advice throughout the writing process, and the editors of the Fordham Intellectual Property, Media & Entertainment Law Journal for their editing and feedback. The author would also like to extend a special thank you to her parents for their unconditional love and support.