I can no longer find it anywhere online [update: here it is; thanks to Terry Martin], but Adrian Ellis has an interesting piece in the current issue of The Art Newspaper about the issues that arise when the holdings of art investment funds are shown in museums. As he points out, "when works of art are lent to a museum, their value is usually enhanced. The [lender] can then realise that value through resale of the work with the beefed-up provenance and price that its stint in the public domain accrues."
He also points out that this is not an issue that's confined to loans from art funds: "the relationship between art funds and public museums is in principle no different from that between other collectors or dealers and museums."
As if to prove the latter point, Michael Kimmelman has a piece in today's New York Times on the upcoming sale at Christie's of the four Klimts that have been exhibited since July at the Neue Galerie, alongside the portrait of Adele that the museum's founder, Ronald Lauder, famously bought for $135 million earlier this year. Kimmelman objects to the statement on the museum's wall label that “This acquisition [was] made available in part through the generosity of the heirs of the Estates of Ferdinand and Adele Bloch-Bauer":
"What exactly does that mean? ... There might be some generosity ascribed to the heirs in lending the paintings to the Los Angeles County Museum of Art and the Neue Galerie, were it not for the fact that the museums provided presale publicity of a sort that no auction house could organize. These museums added their prestige to the value of the collection, kindling interest in the artist ..."
Tyler Green takes issue (to put it mildly) with Kimmelman's criticisms of the Bloch-Bauer heirs for not "donat[ing] one or more of the paintings to a public institution" or, failing that, negotiating a sale to a museum "at a price below the auction house estimates of $15 million to $60 million." But I think Tyler gets one thing wrong in his post. He chides Kimmelman for suggesting that, if the heirs had donated one or more of the works to a museum, they would have gotten a tax break, but I think Kimmelman is actually right about that. It's true, as Tyler points out, that no federal income tax is due on restitution received by victims of the Nazis, but that doesn't mean the recipient can't take a tax deduction (i.e., get a "tax break") for donating any property she received to a museum. Tyler also says "the heirs have to pay no tax on the sale," but it's not clear whether even that's true. The pertinent law provides that "the basis of any property received ... as part of an excludable restitution payment shall be the fair market value of such property as of the time of the receipt." Now, the heirs may have a strong argument that the sales price this November is equivalent to the fair market value at the time they received the property; after all, less than a year will have gone by. But, for the reasons given by Ellis and Kimmelman, and especially in light of the enormous amount of publicity generated by the $135 million sale of the portrait of Adele, the IRS could perhaps argue that the values of the other four works have increased significantly since January or February (or whenever it was exactly that the heirs received the works), in which case tax would be due on the sale.