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CRITICAL EYE Tax Loophole, One in a Series

By Porter Anderson |

The question subtly bedevils every discussion of the charitable-gifts tax break proposed by President Clinton and New” York Sen. Daniel Patrick Moynihan. Here’s some quick background for you. While ^ou’re reading, dust off that real y big piece of abstract expressionism you’ve been dying to get out of your breakfast room. You know the one. One, Jackson Pollock’s tiling.

The 198^ Tax Reform Act changed what you might once have gotten for Pollock’s One. Let’s say you were in the right place at the right moment to argue in 19(50 that the canvas Pollock had just painted wasn’t going anywhere: He didn’t even use a brush, just poured and spatterdd it. Much like the work Junior has continued to do on it in (he breakfast room. You managed to demoralize poor Pollock so much that you got the thing away from him for only $100,000.

You’re feeling like a heel for that, aren’t you? Let’s say it’s been worth $1.5 million since 1985. Your conscience finally has gotten to you. So you’ve decided you’ll donate Pollock’s seminal 0/ije to the Dallas Museum of Art.

If your remorse had moved faster and you had m made your generous donation to the Dallas Museum of Art in 1985, you could have claimed the painting’s fair market value of $1.5 million as a handsome federal income tax deduction.

But the 986 Tax Reform Act changed that. All you can deduct is the purchase price, a m:re $100,000. You don’t feel like donating it so much, do you?

Well, help may be on the way. Moyni-han’s Charitable Contributions Tax proposal includes a permanent repeal of such restrictions on tax deductions for gifts of appreciated property. Our neighbor Sen. David L. Boren from Oklahoma is a co-sponsor of the bill. And President Clinton supports it. It’s part of the White House’s much-debated economic package and “Senator Moynihan simply won’t support any plan that doesn’t include this,” says Jack Wills in the senator’s Washington office.

Now, just for your information. One is already in the Museum of Modem Art’s permanent collection.

Look again at whatever’s on your wall. You’ve been had.

But, needless to say, museum folks are thrilled with the Charitable Contributions Tas proposal.

“I can’t think of a downside to the idea,” says Maria Price, director of the Museum of Modern Art in Fort Worth. “Donors need an incentive sometimes.

Without the full-market-value deduction, it makes the temptation so much greater to go to sale. In fact, we’ve been worried because so much American art goes overseas” where foreign investors have the cash to buy major stateside works that museums’ acquisition budgets can’t afford.

Wendy Gottlieb at Fort Worth’s Kimbell Art Museum hails the fair-market-value deduction, but mainly on behalf of her sister museums because the Kimbell specializes in old masters. They move less frequently, by donation or sale.

At the DMA, Clay Johnson says the full deduction “would be particularly advantageous for the Dallas Museum of Art” because of its emphasis on American work. But Johnson goes on to lake an admirably responsible position, pointing out that the real appeal of a good museum to potential donors must be “other factors such as our focus on education, our ability to install our complete collection and our programming. If, on top of that, there’s more incentive to give from the tax laws, it just makes it all the more attractive.”

Just a stone’s throw from where Moyni-han and Clinton are fighting the good fight. Jane Studabaker at Washington’s Guarisco Gallery notes, “This would be great not only for visual arts but also for libraries, collections of silver, costumes- all these things can be left to museums, gifts can be made to universities. And, let’s face it, museums sometimes can be hard to deal with because their acquisition committees take so long-the tax write-off would mean a quicker remuneration for the donor.”

Let’s look at what the tax incentive means in hard numbers.

According to The New York Times, the Art Institute of Chicago received 1,895 works of art as gifts in December 1991 while Moynihan’s temporary restoration of the lair-value deduction was in force. (For the 18 months from January 1, 1991, to June 30. 1992, Congress suspended part of the rule at Moynihan’s urging. This “window” allowed donations of such items as paintings at market value, not just at purchase price.) Last December, once the temporary restoration had expired, the number of the Art Institute’s gifts had nose-dived to 27. And during that same temporary restoration period of the tax deduction, Thomas Jefferson’s Monticello in Charlottesville, Virginia, saw its gifts jump from 10 to 110. Moyni-han told the Senate of a collection of Albert Einstein’s letters on the theory of relativity that went to New York’s Pier-pont Morgan Library, a 1929 Miller 91 racing car that went to the Smithsonian, artifacts from Louis Sullivan’s Chicago Stock Exchange that went to the University of Notre Dame-all during the window opened by the temporary restoration of the fair-value deduction.

The basic issue here is public access. When the government makes it worth your generosity to make important donations, the works go into museum collections so all of us can learn from them. Without such an incentive, these works stay hidden in your breakfast room-or maybe someone else’s breakfast room in Tokyo or Abu Dhabi or Berlin.

But here’s where it gets uncomfortably intriguing.

I’d like to assure you that I support the bid to reinstate the fair-market-value deduction for a contribution of appreciated property. Happily, the prospects, at this writing, look good. I’m particularly pleased to report to you that Sen. Phil G ram m had not, at press time, taken a position on the question. That, in this political climate, is good news. Sen. Bob Krueger’s staffers say if elected, he will support the Charitable Contributions Tax proposal if at all possible, but that weighing how much it might cost the economy in these difficult times will be important. Indeed, the Treasury Department has estimated that the proposal could cost about $70 million a year in lost revenue.

Listen to the cautionary comments of the Guarisco Gallery’s Studabaker- they’re more important than we who love the arts may want to admit: “The tax exemption was sometimes abused in the early 1970s. A group of art dealers appointed by the 1RS would review all the write-offs. The problem was that you had a lot of people wanting those write-offs. They’d buy something for $2,500 and have it appraised for $25,000.” Such occasional episodes of greed made the fair-value deduction easy fodder on the floor of the Senate: “Unfortunately, this was an issue on which compromise was necessary to get a bill,” says Wills of Moynihan’s office. The Tax Reform Act of 1986 eighty-sixed the big incentive to donate appreciated property.

What does all this spell?-that dreaded thing, a tax loophole, a loophole mostly for the wealthy, and in this New Clinton-ian season of budget reform.

See in what a peculiar position the often more liberal arts-supportive sector of the electorate finds itself. Many who helped put Little Rock’s favorite son into the White House now find themselves lobbying with him to aid the upper class (how many middle- and low-income citizens have Pollocks to donate?) in order to support the arts and other charitable establishments.

And it goes deeper. A theater producer I admire has said to me more than once that when it comes to a benefit for his troupe vs. a fund-raiser for the local children’s hospital-or the homeless population or the community service centers or the adult literacy program-he throws up his hands and goes home.

“Yes, the arts need money,” he says. “But sick kids? I can’t argue with that. They need to live more than we need to stage plays.”

And there is the fine line we’re walking.

We’re not exactly treading on the beds of sick children here, but at this pivotal time, when the new administration is determined to seek a redirection of this country’s wealth-when we’ve tried so hard to draw a line in the sand and not cross it-how can we turn up with this artsy “exception to the rule”?

True: Art holds the prime potential contribution of any civilization to the ages- we don’t remember the Greeks for the way they cared for their sick children, do we? Also true: We want to encourage privileged citizens to give their treasures away for public enlightenment.

Pollock and company have, yet again, painted us into an ethical comer.

How like the best of our arts.