OVERVIEW

OVERVIEW OF ART DONATION LAW

Internal Revenue Code Section 170(a) permits the deduction of the fair market value of donated art up to 30% of the donor's adjusted gross income in the year of donation. Any excess donation, not absorbed by the 30% of adjusted gross income limitation in the year of donation, can be carried forward for 5 years and deducted in those future years until the deduction is used in its entirety. There is no applicable Alternative Minimum Tax.

If the value of the donated art exceeds $500, IRS Form 8283 must be attached to the donor's income tax return and an appraisal must substantiate the fair market value of the donated art. If the value of the donated art exceeds $20,000, a color photograph must also be attached to the donor's income tax return. If the value of the donated art is $50,000 or more, a pre-donation Statement of Value may be obtained from the IRS Art Advisory Panel under IRS Revenue Procedure 96-15.

A qualified appraisal must include a complete description of the art piece, a statement of the piece's value, a definition of what type of value can be attached to the art piece, the basis of the appraisal of this value, a statement of the factors upon which the appraisal was made, the appraiser's qualifications, the date of the appraisal and the appraiser's signature. The appraisal must include the following descriptive information regarding the donated art piece: artist name, creation date and history of the art piece, medium and subject matter of the art piece, percentage of interest transferred to the donee, cost and date of acquisition by the donor, and proof of authenticity of the art piece. The cost of the appraisal is deductible under Section 212(3) of the Internal Revenue Code

In order to qualify for the full fair market value tax deduction, the art must be donated to a public charity, such as an art museum, whose use of the art is directly related to the donee's public charitable purpose under Internal Revenue Code Section 501. As long as the donor gives the art piece to an art museum with the intent for the museum to keep the art piece and exhibit it, it is reasonable for the donor to anticipate that the art piece would not be put to an unrelated use by the donee, such as sale of the art piece or exchange by the art museum. If the art piece is donated for the express purpose of sale by the art museum [such as an art auction by the charity], that would be considered to be an unrelated use and 100% of the art piece's value appreciation will be disallowed as a charitable deduction.

The art piece to be donated must be Long Term Capital Gain type property, a capital asset held by the donor for more than one year that would result in a long-term capital gain, if sold.

A fractional interest in the art piece may be donated so that the donor can still enjoy its possession on a part time basis. The remaining fractional interest may be given upon the donor's death, with a commensurate estate tax charitable deduction.