DATELINE: June 12, 2008, Chicago
Angela Valdez's article on Mitchell Rales' private museum is fascinating, seemingly well-written, and completely misguided. A Very Private Collection: Billionaire Mitchell Rales Runs the Best Modern Museum You Can't Get Into, Washington City Paper, June 4, 2008. It aptly demonstrates one of the problems about how some members of the media...
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
cover nonprofits. They believe that nonprofit organizations are public entities, which belong to the public and must be operated for public benefit. In fact, nonprofit entities are private entities, just as private as any business corporation. We fully acknowledge that when the nonprofits are tax-exempt, they must operate in furtherance of their exempt purposes and they must be as transparent as the rules require. But beyond those requirements, they are private entities.
Valdez takes the notion that museums are public entities to the extreme. We had never heard of Mitchell Rales. He is an industrialist who collects art. He owns a 125-acre estate in Maryland which includes the Glenstone Museum, his personal residence, and a guest house. The roadway to the museum is lined with sculptures by Richard Serra and Tony Smith. The museum's seven galleries include works by Calder, Matisse, Koons, Pollock, Rauschenberg, and Judd.
According to Valdez, Rales is a well-known collector, referred to by Valdez as a fixture at New York auctions. He gives art to museums and is a director of the Hirshhorn and National Gallery of Art.
In 2006, he formed the Glenstone Museum Foundation. The gist of the lengthy article is that this is a museum, but it is virtually impossible for the general public to gain admission. Valdez's reports that somewhere around 2,000 people have been to the museum. They are subject to close scrutiny by a private security force and are not permitted to chew gum while in the galleries. There is one important fact that Valdez doesn't reveal until the fourth and final page of the article, when she writes:
There are actually two distinct Glenstone Museums. One is the physical structure, the Gwathmey Siegel museum on the same property as Rales’ home, a building owned, according to tax records, by Rales himself. It’s the one with seven galleries full of de Koonings and Calders and Matisses. The one where reservations are mandatory and hard to get. The one with a curator and a paid staff of security guards.
The second Glenstone Museum exists in the ether of IRS documents. Its assets consist of 10 paintings, valued at $76.5 million...
In the tradition of the best muckraking, Valdez's points out the benefits that come with a museum, writing:
Indeed, creating a foundation to assume ownership of your art offers several opportunities to save on taxes: The initial donation may be deductible; the cost of housing and insuring the art can be covered by a tax-deductible cash donation; when the original owner dies, no estate tax will be due; if the art appreciates and is sold, a private owner would pay the 28 percent tax on capital gains for collectibles while a nonprofit foundation pays nothing; and, if the foundation purchases art on its own, it pays no sales tax in most states.
All are quite true, but none of them apply to Rales' physical museum and the art housed in it. Our question to Valdez: When can we come to your house and rummage through your possessions? Even more annoying is Valdez's comments much earlier in her article that "it is hard to say for certain whether Rales has violated any laws by restricting public access." What a loaded and unfair statment. Ms. Valdez, are you violating any laws by not allowing anyone to just walk into your home?
As a private collector, Rales has absolutely no obligation to show his artwork to anyone. She quotes Ford Bell, president of the American Association of Museums, as saying private museums aren't good for the artworld--"It's not a museum if you can't get in." Mr. Bell should watch what he says. We don't know, but we are willing to bet that at some point in the future that Rales might convert his museum into a public, tax-exempt museum open to members of the public. For examples of museums in the Washington, D.C. area where that has happened, consider the Kreeger Museum and the Phillips Collection. At that point, we suspect that Bell would welcome the Glenstone as a member.
While we are all for admission charges, Bell should get off his high horse. Most national museums carry stiff admission charges. Moreover, parents have to deal with commercial aspect of many museums, including multiple stores and kiosks selling toys and games, expensive restaurants, and parking. Many museums rent out their facilities for private functions such as wedding receptions and corporate meetings. We like to see museums engaged in creative revenue generating activities because many good things aren't free, but we resent the holier-than-thou attitude reflected in Bell's comments and Valdez's positioning of those comments.
Valdez also needs to get her facts straight. She points to Ronald Lauder, Alice Walton, and Eli Broad as examples of people who have opened their private collections up to the public. The problem is that the Neue Galerie, and Crystal Bridges are both tax-exempt entities. We know that Mr. Broad has a large art collection and that many of the works are lent to other museums, but we don't know the status of the ownership.
Valdez is quick to point out the fact that if works owned by tax-exempt, Section 501(c)(3) museum were displayed in Rales' private museum, that would most likely be an act of self-dealing, prohibited by the private foundation provisions of the Internal Revenue Code. However, Valdez points to no evidence that such acts have taken place. In fact, it appears that the paintings held by the foundation are loaned out to other musuems, in keeping with the foundation's stated mission. Valdez quotes Janne Gallagher, an attorney with the Council on Foundations. We know Gallagher and were not at all surprised to hear her tell Valdez that someone as wealthy as Rales probably is well counseled when it comes to private foundation excise taxes.
Valdez article brings back two converstions we had with reporters in the last couple of months. In both cases, we informed the reporters that they didn't have a story because the scandal they thought they had uncovered was not a scandal. In one case, the reporter sent us a one-sentence response, stating: "Transparency requires disclosure and unless they disclose, I am going to assume the worst." Problem was that the organization had made all the disclosures required by law. As a private club, they had no obligation to say more. That might not be the best approach, particularly when they have nothing to hide, but it does not automatically follow that the club was doing something illegal or inappropriate.
We don't know how Valdez researched her article, but in our opinion, it looks like she thought there was more to this story than there actually was. If that was the case, Valdez should have done what the rest of us do: Admit you followed an unproductive road and move on to something else.
In the end, Rales has no obligation to anybody. Its his property and he can do what he wants with it. By the way, we recall a story in the last several years where a museum patron put a chewed piece of gum on a painting, so we understand Rales' concern when it comes to his private property.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
Copyright 2008, Charity Governance Consulting LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for re-posting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good" and this web blog. For additional information call 773-325-2124
