A picturesque gallery space inside a converted 1902 stone barn — is just down the road from the Greenwich, Conn., estate of its creator, Peter M. Brant, the newsprint magnate and avid art collector. There are no identifying signs for the center, whether at the turnoff on North Street, at the security gate or on the building itself, though the location is known to the art-world cognoscenti and celebrities who attend the twice-a-year gala openings, held at the private polo club next door that Mr. Brant also founded. Visits to the center itself are by appointment only.
Mr. Brant’s five-year-old museum, cloistered as it is, nonetheless is the beneficiary of what is in effect a federal subsidy. Operated by a nonprofit charitable foundation created and controlled by Mr. Brant, this cozy museum is tax-exempt.
Thanks in part to the skyrocketing value of art and the growing number of collectors who buy it as an investment, private museums — sometimes in out-of-the-way locations and with strictly limited public access — have proliferated in the last decade. While these jewel-box museums can house extraordinary work and offer a small group of art lovers an unusual viewing experience, critics wonder whether taxpayers are helping subsidize wealthy collectors’ multimillion-dollar purchases with little public benefit in return.
And at a time when concerns about inequality have heightened criticism of government policies that favor the wealthiest sliver of society, these tax breaks have come under sharper scrutiny.
“I think these types of deals do not follow the intent, even if they follow the letter, of the law,” said Rebecca Wilkins, senior counsel on federal tax policy at the Institute on Taxation and Economic Policy. “They feed into the idea that the system is rigged toward the wealthy.”
Whether the system is rigged or not, the country’s network of museums, great and small, relies on a tax code that encourages rich collectors to share their art instead of keeping it locked away in homes or storehouses. The Association of Art Museum Directors estimates that more than 90 percent of art collections held in public trust by American museums were donated by private individuals. Personal collections have also germinated into cherished institutions like the Barnes Foundation, now in downtown Philadelphia; the Frick Collection in New York; and the Phillips Collection in Washington, all of which started in private residences that showcased the masterpieces acquired by wealthy art aficionados.
These museums, along with more recent ones, like the Rubell Family Collection in Miami’s art district, have tens or hundreds of thousands of visitors every year, operate scores of educational programs, publish catalogs and aggressively publicize their exhibitions.
Wealthy collectors, of course, have long saved millions of dollars in federal taxes by donating art and money to museums and foundations. But what distinguishes Mr. Brant’s center and a growing number of private tax-exempt exhibition spaces like it is that their founders can deduct the full market value of any art, cash and stocks they donate, even when the museums are just a quick stroll from their living rooms.
For most art lovers, dealers, museum professionals and scholars, use of the tax system to support art exhibitions and appreciation is an article of faith. But Robert Storr, dean of the Yale School of Art, worries that some collectors are exploiting a legal loophole without fulfilling a broader mission of education or research.
He and his wife, Emily Wei Rales, have put together what is considered one of the world’s best collections of postwar art, with masterworks by Alberto Giacometti, Willem de Kooning and Jackson Pollock. Mr. Rales is a co-founder of the Danaher Corporation, a global science and technology company. The museum’s total assets, including art, are valued at more than $702 million, according to Glenstone’s 2012 tax return, the latest one publicly available.
Mr. Deitch, the former art museum director, chose the 25,000-square-foot Glenstone as one of his favorite private museums in the online edition of Architectural Digest.
A limited number of people, however, get the opportunity to see the art. Like the Brant art study center, Glenstone is open only a few days a week to small groups. Visitors must make reservations in advance and be accompanied by docents.
Whereas the Barnes had more than 285,000 visitors last year, and the Phillips received more than 180,000 in 2013, Glenstone had roughly 10,000 visitors from 2006 to 2013. The Raleses and museum officials declined to answer any questions about Glenstone.
With the close last month of its most recent show, an exhibition of work by the Swiss art team of Peter Fischli and David Weiss, the Glenstone museum is now off limits to outsiders until the next scheduled opening in June 2015.
The Hall Art Foundation, created by Andrew J. Hall, the chief executive of Astenbeck Capital Management, closes its exhibition space in Reading, Vt., from December through May. About 1,500 people have visited since this tiny museum, which is on Mr. Hall’s 19th-century farm, opened in fall 2013, said Maryse Brand, the foundation’s director. According to its 2012 tax return, the foundation has $38 million in total assets.
“The resources and funding that go into the Hall Art Foundation’s spaces, programs and partnerships” — which include those with the Massachusetts Museum of Contemporary Art and the Ashmolean Museum in Oxford, England — “all have a common goal of making artwork available for the enjoyment and education of the public,” Ms. Brand said in an email, and they “far outweigh any benefits received from tax exemptions.”
Although Internal Revenue Service guidelines are vague about what private museums need to do to qualify for a federal tax break, experts agree that public access is often crucial.
“The basis for a museum being a tax-exempt nonprofit is that it’s educational, but to be educational, you have to provide access to the public,” said Lloyd Mayer, a professor at Notre Dame Law School. “The question is, ‘What is enough?’ ”
Simply having public hours is not sufficient. The I.R.S. has issued rulings in the form of memorandums that specifically say that private operating foundations must have adequate signs and advertise.
Marcus S. Owens, a Washington lawyer who was formerly the director of the I.R.S.’s Exempt Organizations Division, said the agency also looks at whether a private art center is “physically adjacent to the owner’s home or office,” because that could signal that the art is still primarily for the benefit of the owner, rather than the public.
“Those strike me as too clever by half,” he said, referring to museums on or adjacent to a collector’s property.
Mr. Owens pointed to an I.R.S. memorandum that revoked the charitable designation of an unnamed collector who placed sculptures near his pool and said they were open for public viewing. “The fact that no effort was made to advise the general public of the availability of the garden through publicity or signs on the premises,” the I.R.S. said in a 1987 ruling, “indicates an attempt to control and limit the size and timing of groups visiting the property.” Visits by a few groups affiliated with a museum or school were not enough to justify the exemption, the I.R.S. also noted.
Mr. Storr at Yale says such guidelines make sense. “Inviting a bunch of schoolchildren from a local school is not the same thing as a real educational program,” he said.
But I.R.S. rules allow plenty of leeway. Private operating foundations, tax experts note, can qualify for a tax exemption even without letting in a single visitor. Tax-exempt organizations can also fulfill their mission by lending out works, giving grants or making the collection available to researchers.
“You don’t actually have to have it open to the public,” said Ralph E. Lerner, a co-author of the reference classic “Art Law: The Guide for Collectors, Investors, Dealers and Artists.” “But you’ve got to obey the rules,” he said, such as keeping the art out of your home when it is not on loan. “Don’t tell me you’re having one dinner party and moving it over for two hours.”
“I’m not against it being done, but it’s got to be done well,” Mr. Storr said. “If there’s to be a public forgiveness for taxes there should be a clear public benefit, and it should not be entirely at the discretion of the person running the museum or foundation.”
The definition of public benefit, after all, can be subject to interpretation. Mr. Brant’s foundation has organized traveling exhibitions, sponsored lectures and hosted educational workshops for children, a spokeswoman said. But among the charitable activities that specifically involved the Greenwich center and were highlighted on his foundation’s 2012 tax return (the most recent publicly available) were visits by Larry Gagosian, Mr. Brant’s superpowered art dealer, and his fellow billionaire collectors, Victoria and Samuel I. Newhouse Jr.
The growing popularity of private museums is related to the dizzying art market. Record-setting bids that run into tens of millions of dollars have prompted sustained applause in auction houses around the world. In the United States alone, average fine-art auction prices doubled from 2009 to 2013, according to the European Fine Art Foundation.
“There’s been a seismic shift in the past 10 to 15 years,” said Tom Eccles, executive director of the curatorial studies program at Bard College. “Art is seen today as an equal asset class to stocks, boats, houses and jewelry, and people don’t want to give their assets away.”
That’s where tax strategists come in. Collectors used to be able to donate works to a museum while keeping the art in their own homes while they were still alive. But a change in the tax law in 2006 outlawed the practice.
Although there are no verifiable figures on the precise number of private art museums and foundations in the United States, art advisers and tax experts who deal with wealthy collectors say the total is growing. “There’s definitely been a major uptick in this area,” said Adam von Poblitz, head of estate planning at Citi Private Bank and a tax expert. He said he was currently in discussions with a half-dozen families about creating private museums or private operating foundations for their art collections.
In 2013, a Private Museum Summit was held in London, the first of its kind and a sign of the rapid increase in the museums’ numbers worldwide, particularly in Asia. In the United States, Suzanne Gyorgy, head of art advisory and finance at Citi Private Bank, said that in the past decade she had “seen more and more warehouse spaces being developed into private museums or people building museums on their private property.”
Donating to established museums, which also earns a tax break, is still common, but most institutions are selective about what they accept. Many don’t specialize in the contemporary art that now attracts some of the highest prices at auction. Moreover, giving away an artwork means fully relinquishing power over a once-prized possession. As the two-volume “Art Law” guide advises, private operating foundations can be a good option “for a collector who wants the tax benefits of donating his art collection yet cannot cope with losing total control over the collection.”
Mr. Lerner, the guide’s co-author, helped popularize private museums in the mid-1980s, he said, by applying the tax code “in a creative manner.” The practice, he said, “gives the ability to have your cake and eat it too.”
Dorothy Kosinski, director of the Phillips Collection in Washington, said that public funding for the arts was minuscule. “Why not give these people credit,” she said, “if they’re going to spend their time and money in supporting artists and making their facilities open to the public?”
While art donated to a charity or foundation ceases to be an owner’s private property, the donor can still control it through the foundation and be eligible for tax deductions. According to Glenstone’s 2012 tax return, Mr. Rales donated $149 million worth of stock, mostly from Danaher, potentially saving him tens of millions of dollars in capital gains taxes. His partner and brother, Steven M. Rales, donated an additional $26 million in stock to Glenstone from the Janalia Corporation, a holding company that the brothers own.
Once a nonprofit foundation is set up, it can write off the cost of conserving, caring for and insuring the art, as well as designing and building exhibition and storage facilities. The Raleses are now planning a second, 150,000-square-foot museum, designed by the architect Thomas Phifer. The nonprofit’s art purchases are also exempt from state and local sales taxes.
Not all private collections that exhibit art take advantage of a tax exemption. Howard Rachofsky and Vernon Faulconer, two Dallas collectors, and Rosa and Carlos de la Cruz, who is chairman of the CC1 Companies, in Miami, have opened small museums with limited hours and access, but neither gallery space is registered as a foundation or charity.
In an email, Ms. de la Cruz said her museum was “our way to contribute to society and support education in the visual arts,” and questioned whether individuals deserve an exemption when they still maintain tight control over the art.
The Brant Foundation, which operates the art study center and was created in 1996, has more than $93 million in total assets, according to its 2012 federal tax return.
(In an I.R.S. civil action unrelated to his foundation, Mr. Brant contributed to a $9.1 million settlement in 2004 of a case involving him and others in what prosecutors had said were unpaid taxes on the sale of 58 artworks.)
Mr. Brant declined to comment about his foundation, but Tisha Kresler, a spokeswoman for him, said it engages in much charitable work, citing a free arts day for homeless children from New York City last year and partnerships with the Greenwich Y.M.C.A. to hold workshops and tours for children. The Brant Foundation also lends art and organizes traveling exhibits. A show at the Greenwich center can attract 8,000 to 10,000 people, she said.
That number includes hundreds of gallery owners, artists and celebrities like Leonardo DiCaprio, Christopher Walken and Chloë Sevigny who have attended the center’s opening galas. Fortified by Champagne and barbecue served under an enormous tent on the expansive green, guests have viewed art by some of Mr. Brant’s favorite artists, like Andy Warhol, Cady Noland and Richard Prince. A Julian Schnabel exhibition that ran from November 2013 through March 2014 included several portraits that Mr. Brant had commissioned of his own family.
Mr. Lerner, the “Art Law” co-author, suggested that even those collectors who set up museums by their homes serve a long-term public good.
“I don’t think that’s something that’s abusive,” he said. After collectors die, their art can become more firmly situated in the public realm, he said, mentioning the Frick and the Isabella Stewart Gardner Museum in Boston. “If you take the long view, I think it’s good for the arts.”