Lifetime Donations by Artists: Why Donations Tend to Occur after the Paint Has Dried

Practitioners who represent commercially successful artists have most likely run into one of President Richard Nixon’s infamous tax legacies that tends to dissuade such artists from making lifetime donations of their works to charity. This article will review the basic rules for claiming a charitable income tax deduction for lifetime gifts of tangible personal property and set forth some planning ideas for practitioners to consider.

By Michael Duffy
Lifetime Donations by Artists

Lifetime Donations by Artists

Practitioners who represent commercially successful artists must consider rules for claiming a charitable income tax deduction for lifetime gifts of tangible personal property.

The Income Tax Charitable Deduction Basics


Art collectors are eligible to claim a fair market value income tax charitable deduction when making lifetime donations to qualified charities. In order to claim a fair market value deduction, the following prerequisites must be satisfied:

  • The artwork must be long-term capital gain property as defined by IRC § 1221.
  • The artwork must be appreciated.
  • The donee must be a US public charity or a US private operating foundation.
  • The donee must put the artwork to a related use.
  • If the donor’s charitable deduction is greater than $5,000, there must be a qualified appraisal prepared by a qualified appraiser, pursuant to IRC § 170(f)(11)(C)&(E).
  • There must be a contemporaneous written acknowledgment of the contribution from the donee for any contribution over $250.
  • IRS Form 8283 must be completed and attached to the donor’s income tax return if the donor’s deduction for all noncash gifts is over $500.

Under IRC § 170(b)(1)(C)(i), a collector can either claim a deduction equal to the work’s fair market value up to 30 percent of the collector’s adjusted gross income (AGI) or, under IRC § 170(b)(1)(C)(iii), can claim a deduction of the lesser of the work’s fair market value or the work’s tax basis up to 50 percent of the collector’s AGI.

If a collector donates artwork during life to a private non-operating foundation, the deduction is limited to the lesser of the work’s fair market value or the collector’s tax basis and further limited to 20 percent of the collector’s AGI. Under the 2017 TCJA, the so-called Pease limitation on itemized deductions is suspended until 2026.


The rules for artists stand in stark contrast to those for collectors. If an artist makes a lifetime donation of a self-created work to any type of charity, IRC §170(e)(1) provides that the artist is donating “ordinary income” property and is eligible to claim an income tax deduction equal only to the artist’s tax basis (e.g., cost of the paint and canvas). In addition, IRC § 170(f)(3) requires the artist to donate all of her copyright interests in the work or the donation will fail to qualify for any income tax charitable deduction.

Historical Context

Most people do not associate former President Richard Nixon with the art world or philanthropy. Instead, Nixon is indelibly etched into America’s history for the infamous Watergate scandal that occurred during his 1972 re-election bid, which shook our nation’s confidence in the White House and our political system to its very core.

As the sensational Watergate story emerged, another scandal was simultaneously being exposed by the press that involved then-Vice-President Spiro Agnew. Agnew was charged with and eventually pleaded no contest to tax fraud for failing to report illegal bribes as taxable income, eventually causing him to resign his post. This bombshell of a story led the same relentless investigative reporters who were covering Agnew to expand their web of scrutiny to Nixon’s tax returns, which did not end well for Nixon. See Thorndike, Joseph J., “JCT Investigation of Nixon’s Tax Returns,” Tax Notes, June 13, 2016.

It was legal between 1917 and the first half of 1969 for creators of works such as letters, books, memoranda, audio tapes, films, and creative works (e.g., fine art) to donate their work product to charity and receive a charitable income tax deduction equal to the work’s fair market value. Conley, Sean, Paint a New Picture: The Artist-Museum Partnership Act and the Opening of New Markets for Charitable Giving, 20 DePaul J. Art. Tech. & Intell. Prop. L. 89 (2009). The income tax charitable deduction was available even though the creator did not have to realize ordinary income when either completing or later donating the work.

This asymmetry between claiming ordinary income and business deductions essentially allowed authors and artists to double dip their income tax deductions because the charitable deduction did not have to be reduced by any prior or current business expense deductions associated with the donated work. As a result, before the change in the tax law creators essentially received three income tax benefits from donating their works. They (1) did not recognize ordinary income, (2) received a charitable income tax deduction, and (3) did not have to reduce the charitable deduction for claimed business expenses associated with the donation.

Congress caught wind of this customary practice in 1967, which had been used by Lyndon Johnson, Harry Truman, and Dwight Eisenhower before incoming President Nixon (see Questionable Practice sidebar), and in 1969 changed the tax laws regarding donations of tangible property. On December 30th, 1969, Nixon reluctantly signed the Tax Reform Act of 1969 (The 1969 Act), which added new § 170(e)(1)(A), limiting income tax deductions for such lifetime donations to the donor-creator’s cost basis (e.g., the President’s out-of-pocket expenses like paper and ink when donating a memorandum). The new law applied retroactively to any donations made on or after July 25, 1969.

Based on information leaked to the press, a series of news articles by the Wall Street Journal revealed that Nixon, through several of his advisors, had forged and backdated documents to make it appear that his 1969 gift of his presidential papers fell within the old tax law.

This donation involved a transfer and supposed completed gift of 1,176 boxes of disheveled political papers to the National Archives for which Nixon claimed a $576,000 charitable tax deduction. It is interesting to note that the deduction would have zeroed out Nixon’s 1969 taxes but for the new alternative minimum tax regime.

In 1974, in an attempt to quash the inexorable flow of damning news stories about Agnew’s tax fraud and his personal tax compliance practices, and with the Watergate scandal simultaneously coming to light, Nixon urged the IRS to take another look at his personal tax returns for the years 1968-1972. With the integrity of the IRS and the tax collection process at risk of being irreparably tarnished, the Service assembled a special committee to take Nixon up on his offer. In 1974, the five-person Joint Committee on Internal Revenue Taxation (JCIRT) issued a 1,000 page report in which it determined that Nixon had indeed engaged in tax fraud by compelling his advisors to forge and backdate the 1969 deed of gift so that it appeared his 1969 donation qualified as completed before the change in the law.

There were several other glaring omissions and incorrect filing positions on Nixon’s returns, which resulted in the IRS assessing back taxes and interest of $476,451, which was one-half of Nixon’s then net worth. For whatever reason, perhaps because of the all-consuming Watergate scandal, the IRS did not assess Nixon civil or criminal penalties.

It’s worth noting that Nixon’s tax scandal was the root of his famous statement, which is often misattributed to the Watergate scandal, “People have to know whether or not their president is a crook. Well I am not a crook!” It’s also worth noting that in July 1974 the House Judiciary Committee considered 12 proposed articles of impeachment, including one article that involved his tax fraud, but the tax fraud article was voted down 12 to 26. Watergate: Chronology of a Crisis (Washington, D.C.: Congressional Quarterly, 1975): 123-A. NTD.

Ripples through the Art World

Artists and museum curators were outraged by The 1969 Act, decrying that Congress had used a sledgehammer to solve a problem where a scalpel would have been more appropriate—that the law should have been narrowly written to apply only to public officials like Nixon. Dwindling artist donations following the law’s enactment were highlighted as an unintended consequence of the law. It was reported that in the three years before the tax law change in 1969, the Museum of Modern Art received 321 donations from artists, but in the three years afterwards it only received 28 donations from artists. Conley, at 108.

Planning Alternatives


Wrapping self-created art in an entity to convert ordinary income property into capital gain property to reduce realized income upon sale or disposition does not work under IRC § 1(h)(5)(B).

Similarly, wrapping art in an entity for the sole purpose of converting ordinary income property into a capital gain asset to side-step IRC § 170(e) does not work under Ford v. Comm’r, T.C. Memo 1983-556.

Having an artist gift a piece of art to another person and having that person then donate the newly-acquired artwork does not change the character of the work under IRC § 1221(a)(3)(C), which provides that the ordinary income character stays with the gifted art. The art does lose its ordinary income character when the artist dies and it passes through the estate under IRC § 1014.


The charitable income tax planning options for most commercially successful artists are few and far between. A married artist may consider leaving her inventory to her surviving spouse in order to give the survivor the following post-mortem planning options: (1) disclaim some or all of the work (depending on the terms of the artist’s final estate planning documents, the disclaimed works might flow to charity or to taxable heirs); (2) sell some or all of the work for little or no capital gain tax because the tax basis is stepped up at the artist’s death; or (3) donate some or all of the work to charity, including a private foundation established by or for the deceased artist, so that the surviving spouse can claim an income tax deduction.

If the surviving spouse disclaims under option number 2 and the work passes to a charity in which the spouse is an officer or director, then internal governance controls within the charity should be put into place that preclude the spouse from making any decisions regarding the disclaimed art. Otherwise, the disclaimer may fail under IRC § 2518, which requires the person making the qualified disclaimer to give up direction and control of the disclaimed asset.

With regard to option number 3, because the tax basis can be stepped up to fair market value through the estate, the survivor may wish to claim a tax basis deduction and elect to use the 50 percent AGI limitation rather than a fair market value deduction limited to 30 percent of the surviving spouse’s AGI.

Of course, artists may still wish to donate works during their lives to charities even though there is little or no income tax deduction benefit for doing so. Such donations tend to be driven by vanity, pure altruistic reasons, or for marketing or branding reasons. To this last point, it usually helps an artist’s exposure, “street-cred,” and pricing if his work appears in the permanent collection of a well-respected museum.

Finally, if an artist intends for her inventory to pass to the artist’s own private foundation upon death, the artist may be encouraged to form the foundation during the artist’s life and fund it with a modest amount of cash and biographical documents or artifacts. This will allow the artist to channel her creative energies into defining her legacy by being able to directly participate in writing the foundation’s bylaws and mission statement, selecting the officers and directors (and their successors), selecting key outside advisors who will assist with various legal, accounting, appraisal and conservation needs, and providing invaluable guidance as to, among other topics, grant-making, scholarships, internships, study programs, and de-accessioning.

Extreme caution must be exercised when a living artist creates a foundation during the artist’s lifetime and wishes to fund it with works of art, some or all of the artist’s archives and libraries, the artist’s operating entity, or the artist’s studio or home. Under the self-dealing rules set forth in IRC § 4941, the foundation cannot provide an inurement and private benefit to the artist or it is at risk of incurring excise taxes and losing its tax-exempt status. According to one study, the only sure way for living artists to fund artist-endowed foundations during life with their works is for the donor artist to completely cease creating and selling works to the public. The Aspen Institute, The Artist as Philanthropist—a guide for artists and their lifetime foundations: the dos and don’ts (2018). This likely unreasonable demand, coupled with the ability to claim only a tax basis deduction (assuming copyrights are also donated), leads most artists to fund their foundations after they have passed and their paints have dried. n

Questionable Practice

Sometime after Nixon’s election in 1968, outgoing President Johnson coached Nixon on how to manufacture a charitable deduction with the donation of Nixon’s pre-presidential papers. President-elect Nixon enthusiastically embraced Johnson’s advice and in 1968 donated a collection of pre-presidential papers to the US government, claiming an $80,000 charitable income tax deduction. The 1968 donation met all of the then-requirements for a deduction. As was discovered in 1974, the 1969 donation did not.

In addition to changing the tax law to limit a creator’s deduction to tax basis, Congress passed The 1974 Presidential Recordings and Materials Preservation Act in the wake of Nixon’s resignation. It declared Nixon’s presidential papers and tape recordings to be “public property” to prevent him from destroying evidence and to reduce secrecy and to allow historians to fulfill their responsibilities. The law applied only to Nixon. Four years later, Congress enacted The 1978 Presidential Records Act, which essentially expanded the 1974 law to all presidents and vice-presidents.

By Michael Duffy

Michael Duffy is a director with Merrill Private Wealth Management.