Fractional art donations prove charity starts at home

Late in 2005, retired Rouse Co. CEO Anthony W. Deering and his wife, Lynn, donated half-interest in a Winslow Homer painting to the Baltimore Museum of Art. But the 1873 oil - Young Man Reading - has spent only a month at the museum and wasn't on display.

That's fine with the BMA, which says it must prepare a proper exhibition before showing the piece and will inherit the whole thing anyway when the Deerings die, at the latest.

But this kind of thing really hacks off Iowa Sen. Charles E. Grassley, and he has a point. The ranking Republican on the Senate Finance Committee is bothered that "partial donors" of art get big tax deductions while museums sometimes see little or nothing of what's been given.

Last year, a Grassley-sponsored law tightened restrictions on "fractional" donations, but now museums are trying to get it rolled back, saying it threatens their ability to add to their collections.

Previously, fractionally donated art might not show up at a museum for decades - or ever, if the donor didn't agree to give the remainder in his estate. Now Congress has required museums to take "significant physical possession" of such works within a decade of the first fractional gift.

That leaves plenty of time for the Winslow Homer to appear at the BMA, and the museum says it'll get there eventually. (It doesn't fall under the new law, anyway, since the partial gift came before.) But Grassley says the Homer and two other BMA fractional donations that I told his staff about show that such deals often benefit the donors a lot more than the museums.

"These are a case study for why we needed to change the law," he said in a statement relayed by a spokeswoman. "Is it fair to allow a donor to deduct hundreds of thousands of dollars from his taxes for a painting that will hang in a museum for [a few months] a year?"

The Deerings bought the Homer in May 2004 for $511,500, auction records show, and donated half in December 2005. At the same time, they bought Basket of Fruit, a 1924 piece by Pierre Bonnard, for $1.58 million and also donated half, with the rest to come later.

10% donation

Another donation I examined involved an 1897 portrait by Henry Ossawa Tanner of his father, Bishop Benjamin Tucker Tanner. Eddie Brown, CEO of Brown Capital Management, his wife, Sylvia, and their two daughters gave the BMA a 10 percent interest in the painting in 2002, with a promise to donate the whole thing eventually.

All three gifts were planned with the BMA. The museum identified paintings it wanted, and the Deerings and the Browns agreed to buy them and turn them over in stages. The Tanner, for example, "is the most important 19th-century American painting to enter the BMA's collection in over a quarter of a century," museum director Doreen Bolger said at the time.

The gifts assuredly generated big tax deductions for the givers, although I was unable to determine what the Browns paid for the Tanner. Under the right circumstances, the Deerings - by deducting half the value of paintings worth more than $2 million - could save hundreds of thousands in taxes.

None of the paintings, however, has a permanent home yet in the museum. The Tanner has been on display 16 months since it was partially donated in 2002, says museum spokeswoman Anne Mannix. The Bonnard has been shown for four months since the museum gained half ownership in December 2005, and the Homer was there for a month.

So what? asks Bolger, the BMA's director.

"We're going to have them forever" eventually, she says. "The people who have them now are only going to have them a short period of time."

Of the Deerings' paintings, "the museum has already had one of them for an extended period," says Tony Deering, a former BMA board chairman. "They have the right to have those paintings" anytime they want, he added.

The Homer, says the museum, will appear when it can be fittingly displayed in the American wing, with related works and proper publicity.

Eddie Brown, whose Tanner has been on view for longer than the museum might seem entitled to (based on its 10 percent ownership), was out of town last week and unavailable to comment, his assistant said.

At one point, Congress considered making museums display art each year for a time proportional to their ownership. The museum lobby got that part axed, but museum officials still hate the bill that became law and say it's deterring donors.

"There have been some tremendous collections - whole collections - where the lawyers [for potential givers] have gotten up and walked away," says Anita Difanis, head of government affairs for the Association of Art Museum Directors.

Museums don't like the new rule that any partial gift must convert to a whole gift within 10 years. And they really don't like the part that caps a gift's value for deduction purposes when the first fraction is donated - even though it might appreciate later. Previously, donors could get a new appraisal with each fraction and take a bigger deduction if the value had gone up.

'Out of our reach'

"If you want people to donate philanthropically, there has to be some benefit for them," said Bolger, who says the BMA is also getting a Robert Motherwell painting and two Rodin busts through partial donation. "The cost of these things is so out of our reach that we have to find a different kind of strategy to add gifts to the collection."

Sen. Charles E. Schumer, a New York Democrat, is leading the charge to undo what museums object to.

The new law "is fairly onerous," Deering said. "The terms that are in the bill make it unlikely that anybody would make a partial gift. It would make more sense for somebody to do it out of their estate."

Well, maybe that's not such a bad idea. By waiting to donate until after their death, benefactors could get full tax benefit from artworks' appreciation. Meanwhile, if they were charitably inclined, they could let museums borrow the pieces.

That way philanthropy might be more about helping cultural institutions and less about lawyers, tax planning and having the government subsidize private enjoyment of art.

Here's Grassley, again:

"Charitable deductions are supposed to provide substantial community benefit. In exchange for tax breaks for a Basket of Fruit, museum goers deserve a real bite of the apple."

BY JAY HANCOCK
Baltimore Sun 4 February, 2007
http://www.baltimoresun.com

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