Sunday, December 10, 2006

Important Fractional Gift News

There's a long story on the front page of the Arts & Leisure section of today's New York Times on the change in the fractional gift rules. The big scoop comes toward the end:

"[Senate Finance Committee chairman Grassley's] staff says he is now amenable to one technical adjustment in the new rules to address an inequity. While the rules no longer allow deductions to increase as a work gains in value, the Internal Revenue Service requires heirs to pay taxes on the fair market value should any portion of the work remain in a donor’s possession when he dies. ... The Treasury Department ... will be directed to forbid the I.R.S. to collect taxes on any artwork that remains partly in an estate so long as the work is contractually intended for a museum, Mr. Grassley’s aides said."

This refers to what I've been calling the "mismatch problem," and it's huge news. The other changes the article discusses should result in a decrease in fractional gifts, but it was this problem that would have led to their complete disappearance.

The article also sheds some light on another issue about which there has been some confusion. Several weeks ago I cited a Minneapolis Star Tribune story that reported that "museum officials are troubled by the new law's requirement that they take possession each year." I noted at the time that there was no such requirement in the new law, and the Times story confirms that reading:

"The original proposals would have required a museum to take possession of the artwork every year for a period of time corresponding to its stake in it. In a letter to [the Finance Committee], Anita Difanis, director of government affairs at the Association of Art Museum Directors, argued that moving valuable artwork was costly and risky. She argued that many works also require special exhibition space that is too expensive to recreate year after year. Mr. Grassley agreed to a looser standard, saying the work must be handed over permanently within 10 years and the museum be given access at some point in the interim. 'I did hear that there was a complaint about the requirement that the museums take possession every year, but I thought we did what we could to compromise with them,' he said."

For more on the latter issue, see my earlier post here.