Ralph E. Lerner recently featured in a New York Times article as he outlines tax benefit to creating private museums

Share Article

Most art collectors and people don’t think of art as a valuable asset. Rather, they view it as something beautiful to be admired.

ralph lerner art advisor

Ralph Lerner | Art World Advisor

This asset often appreciates over time, and like any investor, art collectors need to understand the best strategies to take full advantage of the tax code

Most people don’t think of art as a valuable asset. Rather, they view it as something beautiful to be admired. But advisor Ralph E. Lerner knows better. Just like stocks, bonds, precious metals or even cold hard cash, Lerner, who specializes in art tax strategies for major art collectors, understands the value of his clients’ investment.

“This asset often appreciates over time, and like any investor, art collectors need to understand the best strategies to take full advantage of the tax code,” Lerner said.

Of course, depending on motive, Lerner’s clients employ different strategies. If the collector views the artwork purely as an investment, then that person may want to hold onto the piece if they predict it will increase in value. Or that person may want to donate the piece to a major public art museum and deduct the full value of the piece on their tax returns.
Other art collectors may feel an affinity for the pieces they own and don’t feel comfortable just giving them away. In such cases, Lerner advises his clients to set up a private museum. “It’s a way for my clients to have their cake and eat it too,” Lerner said.

In this scenario, his clients can still claim a tax deduction for the full fair market value of the donated work of art while they retain some control and involvement with it, as referenced in this New York Times article.

Lerner explained that a private museum is referred to under the IRS tax code as a “private operating foundation,” which falls somewhere between a private foundation and a public museum. Private operating foundations are organizations that devote their assets and income to the active conduct of a charitable purpose, rather than making grants to other organizations. In order to qualify as a private operating foundation, the art collector must use the income they generate from the art for the active conduct or operation of the private museum and not for the making of grants. They also must use the art directly in the active conduct of their museum’s exempt purpose, that is, the exhibition of the art.

IRS regulation permits the collector to lend some of the works of art on an active and continuing basis to public museums for exhibition. When the works of art are not on loan, they can be stored at a location selected by the collector, but never at the collector’s home.

Lerner pointed out that the application and compliance provisions are somewhat complicated and that it can take up to six months to obtain a favorable ruling from the IRS. However, the benefits to the collector are worth the effort since the collector retains control and involvement with the art and can claim the full fair market value as a deduction , provided the following four requirement are met:
1.    The donated works of art were owned by the collector for more than one year;
2.    The works of art were purchased and were not received as a gift from the creator of the art;
3.    There is a qualified appraisal by a qualified appraiser; and
4.    The works of art satisfy the “related use rule.”

Mr. Lerner explained that the related use rule means that the donated works of art must be related to the exempt purpose of the charity, i. e. the private museum, and must not be sold by the private museum for at least three years following the donation.

With private museums, the short-term benefit is great for the collector and the long-term benefit is great for the general public. Since the collector will not live forever, it is likely that the works of art will someday find a home at a public museum and be made available to the general public.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Ralph Lerner

Ralph Lerner
Art World Advisors
Like >
Follow us on
Visit website