NY Times: Museum Directors Enjoy Tax-Free Housing in Multi-Million Dollar Condos

New York Times, Plum Benefit to Cultural Post: Tax-Free Housing, by Kevin Flynn & Stephanie Strom:

In addition to her $877,000 compensation package, Ellen V. Futter, president of the American Museum of Natural History, lives rent free in a $5 million East Side apartment that the museum bought when she came aboard.

The Metropolitan Museum of Art houses its director, Thomas P. Campbell, in a $4 million co-op that it owns across Fifth Avenue from the museum.

The director of the Museum of Modern Art, Glenn D. Lowry, may have the best deal of all. In addition to the $2 million in salary and benefits he earned last year, he lives in a $6 million condo in the tower atop the museum.

But it’s not just the nice — and free — accommodation: None of these museum heads pay income tax on the value of this housing, which combined would rent for about $400,000 a year.

To anyone who has ever worried over taking a home-office deduction, such executive perks may seem like an aggressive reading of the tax code. But the museums say their leaders are entitled to the same tax break given to university presidents and others whose housing, by law, is not treated as income because their employers require them to live on a “business premises.” Also among that group: motel managers.

The institutions say the exclusion — income that the tax code says does not have to be reported — holds even if the housing is off-site because the homes function as business premises used for meetings and schmoozing with donors. ...

Many tax experts, though, regard such exclusions as risky calls, which is why, they say, they are seldom taken in the corporate world.

“It’s difficult to successfully argue one of these because they seem to stretch the purpose of the ‘business premises’ exclusion in the tax code,” said Daniel S. Goldberg, a law professor at the University of Maryland who specializes in taxation.

And other cultural institutions interpret the law differently. The J. Paul Getty Museum, Carnegie Hall, the Wildlife Conservation Society and the Morgan Library & Museum all treat housing for their chief executives as taxable income though they too say those premises are used for business and entertaining. ...

United States Tax Court rulings have gone both ways, sometimes exempting housing from income for executives who live off-site, and sometimes not. Each of the museums said its arrangement had been approved by its lawyers. The IRS does not comment on specific cases but its guidelines say that for housing to qualify as nontaxable it must be provided for a “substantial business reason other than to provide the employee with additional pay.” ...

Several tax experts debated whether the [American Museum of Natural History] qualified for the exclusion. Deborah H. Schenk, a NYU law professor who specializes in tax law, said it appeared legitimate. “Someone might question whether it is good management of their affairs to sell an apartment at a loss and buy another,” she said, “but there’s no tax issue.”