Friday, September 08, 2006

Some Sun-light on the Fractional Gifts Problem

Kate Taylor has an excellent piece in this morning's New York Sun about the recent change in the law regarding fractional gifts to museums, which I wrote about earlier this week here. She does a good job explaining how dramatic a change this is -- the director of government affairs at the Association of Art Museum Directors says, "any tax adviser would say to somebody with that kind of wealth, ‘You're insane to do this [i.e., make a fractional gift]'" -- and gets a quote from the senior counsel for the Senate Finance Committee on the reasoning behind the change: "Very wealthy people were taking huge deductions, and keeping the art at their homes. ... It wasn't going to the public benefit, or only in many, many years." He called the changes "a pretty commonsense way of dealing with it."

I'm not sure that's right. If your concern is people keeping the art at their homes, all you really need to do is reverse the Winokur rule (which, as I noted in the earlier post, simply required that the museum be given the right to possession of the work for a portion of the year, not that they actually exercise that right). If you didn't think that went far enough, then something like the new rule requiring that the entire interest be donated to the museum within 10 years (or at the donor's death if sooner) might make sense. But what doesn't make sense -- and isn't a "pretty commonsense way of dealing with it" -- is the rule that locks the donor in to the value of the work at the time of the initial gift (unless it happens to have gone down, in which case she gets stuck with the new, lower value), which creates the potential "mismatches" that bring about the tax nightmares I described in my earlier post. As the above quote from the AAMD indicates, all that does is ensure that there will be no fractional giving at all (and, if that's what Congress hoped to achieve, they could have just done so directly).

Taylor reports that the AAMD is lobbying the Senate Finance Committee to change the law, "and hoping to reach a compromise."