Private Contributions and Public Museums

A couple of interesting questions are being kicked around the “artworld” these days, and they concern (1) whether or not nonprofit art museums should, or can, accept money from commercial galleries with a clear financial stake in the exhibiting artist’s career, and in some cases in the actual artworks on display, and (2) whether financial contributions of galleries should, or can, influence what a nonprofit art museum exhibits?

The “should” aspect of these two questions is of course up for ethical debate (i.e.- appearance of impropriety). They are not new or groundbreaking issues, and have existed, let’s say, since Plato. The reason the ethical question is not that interesting, at least not at this point, is because ethical questions and dilemmas lack the power or, more appropriately, the force of law. To believe that a nonprofit museum could be ethically shamed into correcting itself is to believe that Barry Bonds was ignorant of the contents in his daily breakfast (or see MASS MoCAs treatment of Christoph Buchel).

The real issue is the first question: whether or not a nonprofit museum, with tax-exempt status under Section 501(c)(3) of the IRS code, can receive monies from private art galleries or private collectors without these monies benefiting the private parties in more than “insubstantial” way. The reason for this is quite obvious, but just in case, the IRS Code stipulates that a party “donating” money to a 501(c)(3) organization cannot privately benefit from the acts and/or services of the 501(c)(3) because this same private party is already receiving a private benefit–a tax deductible contribution.

In order to obtain tax exempt status under Section 501(c)(3), an organization must be “organized” and “operated” exclusively for purposes which are exempt under Section 501(c)(3). In this case, the factor in play is the “operated” factor. In order to meet this criteria, the nonprofit museum must satisfy several requirements: (1) no substantial activities unrelated to exempt purposes; (2) no private inurement; (3) no private benefit; and (4) organization cannot engage in substantial amounts of lobbying or any amount of electioneering. Our key concern for the moment is number three (3): no private benefit.

A nonprofit museum will meet the “operated exclusively” test only if it serves a public rather than a private interest. The IRS states that “private benefit” must be more than insubstantial in order to defeat the tax-exempt status. However, although the IRS does not give a clear definition of what “insubstantial” means, it does state that “insubstantial” means “incidental,” both qualitatively and quantitatively, and that it is incidental only if “the benefit to the public cannot be achieved without necessarily benefiting certain private individuals.”

In our case, would the public benefit less if Los Angeles MoCA exhibited an artist within their budget, or can the public benefit only by the exhibition of certain – and more expensive–artists (i.e.- Murakami)? Some would claim that funding should not be the guiding criteria, but rather the importance of the artist to the understanding and appreciation of contemporary art. These are all wonderful questions up for debate, but until we know whether or not any of the interested private parties contributed any of their money to MoCA, Redcat, or SF MoMA as tax-deductible donations, the question of force of law retreats to the seemingly irrelevant ethical question of “should.”

To access the New York Times article on private contributions and public nonprofit institutions, click here. (If you need a code, use: clancco for both login and password).

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