Misguided Thinking in Washington—Tax Exempt Status

John Stancil

Utah Senator Orrin Hatch (R) recently sent a letter to IRS Commissioner John Koskinen. At the heart of the issue raised by Senator Hatch was his concern that many private museums should not receive 501(c)(3) tax-exempt status. Much of his reasoning seems to indicate a lack of understanding in regard to many of the smaller museums that dot the landscape of the United States. While not major tourist attractions, these museums do much to help preserve the history of a particular segment of our past. Many may not have wide appeal, but there frequently are a small cadre of dedicated adherents. I will, however, be the first to admit that 501(c)(3) tax-exempt status may be abused by an individual seeking to shield his hobby from any tax consequences while generating a revenue stream or other tax benefits. But don’t penalize all small museums due to a few bad apples.

Let’s address the points raised by Senator Hatch. For example:

“Some of the museums are not readily accessible to the general public with minimal advertising and required reservations.”

There is some legitimacy to this claim. However, location may play a part in accessibility. Just because the museum is in a remote location should not disqualify it from tax-exempt status. Advertising costs money. A small operation may rely on word-of-mouth, local publicity, news articles and the like. When advertising is not affordable, other approaches can be taken. As far are requiring reservations is concerned, this may be utilized as a technique to make certain that the museum is staffed when people want to visit. Again, this can be abused by museums if, for example, they keep minimal operating hours; but public accessibility is an issue that can be addressed through other means.

“Some are open to the public for as little as 20 hours each week—and there are extended periods that the museums are closed entirely to the public.”

Many museums are staffed by volunteers. When it is a small museum, foot traffic may not be great enough to justify being open all day, every day. Having volunteers (or paid staff) available when few people are attending is not good use of the museum’s limited resources. Similarly, in some cases, the business may be seasonal, justifying closing for extended periods of time. The Siuslaw Pioneer Museum in Florence, Oregon, is staffed largely by volunteers, but it is a wonderful museum of the history of the area. It is closed in January and operate on limited schedule during other times of the year. The museum also houses significant historical archives. This museum could not survive as a for-profit enterprise, yet offers valuable insights into the past.

Senator Hatch also raised concerns about the active roles of founding donors in management and operations. In addition, he said, some museums sit on land owned by the founding donor and a number of museums “obtained all, or most, of their collection” from just one founding donor or family. He admits that this, in itself, is not cause to revoke 501(c)(3) status, or to impose taxes on self-dealing, but nonetheless raises questions.

Again, this is short-sighted.

For example, Frances Pew Hayes owned a collection of teddy bears and wanted to share them. The Naples, Florida Teddy Bear Museum was born and grew to over 5,500 bears. It was a fascinating place, founded with her collection. Unfortunately, after her death, the museum was unsustainable and had to be closed.

In summary, Hatch is concerned about how the museum makes its displays available to the public and what privileges the founders and donors receive. His concerns arise from responses to a questionnaire that he circulated in regard to operating practices and other aspects of the museum’s existence. He received eleven responses, hardly a sufficient population to justify broad changes in the law. To deny tax-exempt status to small museums or to make the application and compliance process more onerous is an overreaction to a problem that can be solved through other approaches.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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