Paul L. Caron
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Wednesday, August 11, 2010

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.”

https://taxprof.typepad.com/taxprof_blog/2010/08/ny-times-museum-.html

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Comments

There are the tax rules as applied by a prosecutor and judge in tax court, and then there are the rules as applied in the real world.

Tax court bears no relation to real understanding of the law, which is truly what matters since the tax code is unknowable - you can only be a true expert on certain subsections. It's illiberal and unjust and a piece of the 3 felonies a day culture created by our gargantuan government. Society only survives because the rules are not applied.

The best example of the idiocy of our laws as written is the stings of bars in Texas. The licensing agency was raiding establishments and arresting anyone under the influence for being drunk in public. In a bar. Which apparently was a fully valid application of the law, even though it is manifestly insane - public drunkenness is an offense designed to be used against people causing problems rather than strictly applied to anyone who has consumed an alcoholic beverage outside of their own home, or else the government wouldn't licence and tax establishments that serve alcohol!

I dream of a day when all tax lawyers and IRS agents are unemployed and the federal, state, and local governments have to survive off of revenue derived from a single, $10k personal deduction 15% flat tax with no other deductions or exemptions.

Posted by: real | Aug 11, 2010 11:05:05 AM

If (and I'm quite sure that they do) tax dollars (grants or other funding) even remotely help finance these activities and housing, the housing should be sold. Talk about having it both ways. Sheesh!

Posted by: JohnGalt | Aug 11, 2010 10:09:53 AM

Ministers, Priests, Rabbis, etc. all have this tax-free benefit this as well. It's called "Parsonage," and is supposed to represent the percent of their lodging or housing that is used for religious purposes (as a "parsonage"). They decide this percentage for themselves, and don't pay income taxes on it. Their employers like this, too, as they don't have to pay social security taxes on it either.
Pretty sweet deal, if you ask me.

Posted by: Dimple Mutant | Aug 11, 2010 9:56:23 AM

Local churches are nonprofits and often require its ministers to live in church supplied housing; sometimes sub-code. Even when they would rather buy and live in their own homes. The tax issues are always interesting. Like paying Social Security taxes according to a high level of income, while receiving, uh, much less. There are nonprofits, and then there are nonprofits!

Posted by: Bill | Aug 11, 2010 9:45:16 AM

After all, not-for-profit doesn't mean the institution doesn't make profits, just that it doesn't have anyone who "owns" them....

Posted by: phwest | Aug 11, 2010 9:12:22 AM

Years ago I helped structure such an arrangement for a newly hired museum director. (I won't mention the city for fear of inadvertently identifying my former client.) Is the arrangement abusive? Of course, it can be. However, at least in the case of my client, it was the result of a genuine business situation. The PRIMARY job of the museum director was to raise money from donors. That meant cocktail and dinner parties almost every night. Some of those were held after hours at the museum, but many were held at the home of the museum director.

When she was interviewed for the job, the museum insisted she buy a nicer home that would be better for entertaining. That's when I got involved. Instead of her buying a new place, I suggested that the museum buy a condo next to the museum and require her to live there as a condition of employment. Ignoring taxes, that made much more sense than asking her to spend an addition million or more upgrading her housing to meet the needs of the museum. If she needed an additional 4,000 sqft of space just to entertain museum donors, that was an expense that should properly be born by the museum. It was also an asset the museum should own -- so subsequent directors could use it as well.

Considering taxes, it made even more sense. The cost of the upgraded living space was clearly imposed by the museum, but she could not deduct it if she incurred the costs. (It's doubtful the dinning room, upgraded kitchen, etc. would have met the requirements of Sec. 280A for a "home office" deduction.) Structuring it the way we did simply put the expenses where they belonged -- on the museum's tax return.

Did she receive a non-taxable benefit? I suppose. She did live in nicer space. But, she kept her old home (in the same city) and spent long weekends and some of her vacation time there. She said she really didn't like living in "a fishbowl" (the museum's condo had a spectacular 2 story glass wall) and would gladly have done without the perk.

Posted by: David Walser | Aug 11, 2010 8:54:29 AM

Yes, folks, it's very profitable to work for a not for profit.

The various abuses in this sector...including municipal bond like financing of ever more luxurious hospitals, which plead poverty at the same time they pay their high level administrators stratospheric salaries, should receive far more attention than they do.

Posted by: Dantes | Aug 11, 2010 8:20:29 AM

The question I have (which I admit is not a tax question) is how can these be market based salaries? Is it necessary to pay so much to fill these positions? Perhaps they need that much compensation to afford the lifestyle necessary to mingle with the people from whom they solicit donations?

On the subject at hand, I believe many benefits are written off and are not reported as income by the recipients which would not survive audit in all of the areas where personal use and business use collide.

Posted by: Rob Ives | Aug 11, 2010 8:16:50 AM

Dem dat got, get.

Posted by: Skip | Aug 11, 2010 8:15:35 AM

Unless they use their bedrooms for business entertainment (ask Ms. Futter about that), they should pay tax on the income portion related to personal space.

But, this a a great deal! Now, for tax reasons and based upon what I've learned here, I have to make a decision as to whether my house should be classified as a church, a museum, a motel, or a university. Does home schooling count?

Posted by: Woody | Aug 11, 2010 7:44:45 AM

Hmm, which came first, the chicken or the egg?

Is "on site" housing a requirement or tax free income masquerading as requirement?

Posted by: PJ | Aug 11, 2010 7:16:39 AM