2013 Articles

Gone but Not Forgotten: The End of Fractional Giving and the Search for Alternatives

Beyer, Alicia C.

More than ninety percent of the art on display in museums in the United States was acquired through private donations. Furthermore, over eighty percent of new acquisitions made annually by museums occur via donation. Although these gifts are certainly motivated by the altruism of individual donors, the availability of tax deductions creates a significant additional incentive to give. Thus, a tax system that encourages such donations has positive effects on both donors and museums. In making their gifts, donors are frequently motivated to choose the donation structure that results in the greatest possible tax deduction. However, other concerns, including the timing of the gift and associated deduction, whether to retain possession of the artwork during their lifetimes, and the possibility of combining a donation with income-generating activity also influence the form of donation chosen. Until recently, the fractional gift was one method of donation that was particularly popular with collectors donating valuable and historically significant works. A fractional gift is made when a donor contributes a percentage of their full interest in a work or collection of works to a museum. Fractional giving provided substantial tax advantages to donors, who generally could retain the artwork until the gift was complete, take advantage of appreciation in the work’s value by taking larger deductions when donating subsequent fractions, and spread the donations over sufficient time to deduct the work’s full value. The Pension Protection Act of 2006, however, essentially ended fractional giving by eliminating these unique advantages.