"The Last of the Real Soft Touches"

The New York Times had a piece this weekend on artists and their participation in the increasing number of benefit auctions. Lots of interesting stuff, but from an art law perspective the story made two important points: (1) When an artist donates her own work, she gets an income tax deduction equal only to the cost of materials (though there currently is, as there has been off and on for years, proposed legislation to change that); and (2) When a collector donates a work to be sold, the tax deduction is equal to the price she paid for it (as opposed to its fair market value, as would be the case if the work were donated to a museum for exhibition). The latter is a result of the so-called "related use" rule of section 170(e)(1) of the Internal Revenue Code, which requires that the use of the donated property by the recipient organization be related to the purpose constituting the basis for its tax-exempt status. So a donation of a work of art to an art musuem is (generally) a related use, and the donor gets an income tax deduction for the full fair market value of the work. But if the same work is donated to an arts organization for inclusion at a benefit auction, that's an unrelated use and the donor's tax deduction will be limited to what she paid for the work.