What happens when you donate a non-fungible token (NFT) to an art museum? It’s surprisingly unclear. Should museums even accept NFTs? Maybe, depending on the museum and the NFT. Many museums collect digital art, which obviously includes NFTs. And at least some NFTs are already historically significant.
Sure, it’s a little odd for a museum to collect an NFT, rather than just collecting the artwork it represents. But why not both? Museums have long collected certificates of authenticity that purport to represent “ownership” of conceptual artworks. NFTs are the same thing, in a new digital wrapper.
Brian Frye is a conceptual artist and law professor at the University of Kentucky. This article is part of Tax Week.
So, what happens when an art museum accepts a donated NFT? For the museum, not much. An NFT is just another addition to the collection. But there are some open questions. Does a museum need to own or borrow an NFT in order to show the artwork it represents? Can art museums sell NFTs? And if they can, are those sales governed by the deaccessioning rules that prohibit art museums from selling artwork for any reason other than buying artwork?
But for the donor, it’s a big deal. Probably the most important question is whether the donor can claim a tax deduction, and if so, for how much. Typically, when an art collector donates an artwork to an art museum, the collector can deduct the value of the donated artwork from their taxable income, lowering their federal tax bill. Why? Art museums are usually charities and donations to charities are tax deductible.
What’s a charity? A special kind of nonprofit organization that doesn’t have any owners and is dedicated to a charitable purpose. Every square is a rectangle, but not every rectangle is a square. Similarly, every charity is a nonprofit, but not every nonprofit is a charity.
Section 501(c) of the Internal Revenue Code recognizes 28 categories of nonprofit organizations that are exempt from taxation, including fraternal organizations, cooperative telephone companies and even professional football leagues. But only organizations exempt under section 501(c)(3) are charities that can offer a charitable contribution deduction.
Well, for one thing, many art museums are still unsure about NFTs. Sure, they’re NFTs. But collecting them is another story. Museums are aesthetically avant-garde, but institutionally conservative. Change is always slow, especially technological change. And there are a lot of open questions.
Still, plenty of art museums are . I’ve been especially impressed by the work of curator of the Albright-Knox Gallery in Buffalo. And some museums have even started accepting NFT donations.
Most notably, Miami’s Institute of Contemporary Art was the CryptoPunk #5293 NFT in July 2021. But appraisal . While NFT collectors moan about the illiquidity of the NFT market, it’s a marvel by comparison to the conventional art market. Everyone knows the “floor price” of a collection, and desirable NFTs will sell in a millisecond, if the price is right.