Private-Gallery Tax Exemptions OK, But Merit Scrutiny: Hatch

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Aaron E. Lorenzo

June 2 — Private, nonprofit art museums won’t lose their tax-exempt status following a Senate Finance Committee inquiry, but the galleries remain under scrutiny.

Despite limited public access in some cases—short viewing hours and rules requiring reservations weeks or months in advance—the investigation concluded that the museums haven’t violated their tax-exempt purpose. It also found no wrongdoing related to donations, some of which come from well-off art collectors who founded these private museums on or adjacent to their private residences to showcase some of their own holdings.

“These factors alone are not cause for revoking tax-exempt status or imposing tax on self-dealing, but they do raise questions about the nature of the relationship between the donor and museum that perhaps merit further scrutiny,” the committee's chairman, Sen. Orrin Hatch (R-Utah), wrote to IRS Commissioner John Koskinen in a letter released June 2. “Despite the good work that is being done by many private museums, I remain concerned that this area of our tax code is ripe for exploitation.”

Public Interests

The review, launched in November, quizzed 11 private foundations on whether they promote public interests or aid their collector-founder benefactors through breaks in the U.S. tax code.

In a letter to the museums, Hatch reminded them that the Internal Revenue Service, with Congress' oversight, is charged with ensuring that organizations that have been granted exempt status under tax code Section 501(c)(3) are, in fact, performing work that benefits the public (230 DTR G-3, 12/1/15).

“However, recent reports have raised the possibility that some private foundations are operating museums that offer minimal benefit to the public while enabling donors to reap substantial tax advantages,” Hatch wrote then. “Such an arrangement would be inconsistent with the letter and intent of the 501(c)(3) exemption.”

Varied Answers

Responses to Hatch showed that the total number of hours open each week ranged from 20 to 48 hours, and they also indicated a range in terms of visitors, which numbered just a few hundred over a month in one case to more than 500,000 a year in another.

In addition, nine of the museums don't charge for admission, and in terms of sources for their displays, a couple said most of the art came from the founders' private collections or foundations, while others borrow.

Several museums indicated that donors who had provided more than 5 percent of the collection currently oversee museum operations, often as president of the museum or by serving on the board.

The organizations Hatch investigated included the Broad in Los Angeles, Glenstone Museum in Potomac, Md., and the Rubell Family Collection in Miami.

To contact the reporter on this story: Aaron E. Lorenzo in Washington at

To contact the editor responsible for this story: Brett Ferguson at

For More Information

Text of Hatch's letter to Koskinen is in TaxCore.