Art in the Age of Tax Avoidance

Utilizing the near universe of tax filings, we document both the extent of donations of art to non-profit organizations in the U.S. and their use as a method of tax avoidance. Non-profit organizations hold sizable assets, worth $12.4 trillion in 2019, with 2.65% identified as holding art, valued at $5.5 billion. While only 20% of organizations required to disclose the value of their collections and donations do so, these organizations consistently write down the value of artwork donations by 13%. This effect is amplified by donation valuation methods more likely to be influenced by the donor, but driven primarily by donations to private foundations, which write down by an average of 98.7% and avoid substantial amounts in taxes. Private foundations are associated with poor internal controls, with higher pay and benefits, more related executives, and a greater likelihood of being operated out of a tax haven. Tax losses due to avoidance is great, as back of the envelope calculations estimate between $1.4 billion and $3.9 billion in income tax losses over our 9 year sample