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60 B.U. L. Rev. 625 (1980)
Artists, Art Collectors and Income Tax

handle is hein.journals/bulr60 and id is 637 raw text is: ARTISTS, ART COLLECTORS AND INCOME TAXt ALAN L. FELD* The federal income tax law treats artists and art collectors differently. Similar transactions concerning artworks produce disparate income tax results, depending on whether they involve the artist or the collector. On balance, these results seem to favor the collector over the artist. But notwithstanding the dismay of some artists and their advocates, the dif- ferences in result flow, in the main, from the differences in the source of the taxpayer's investment in the work. The collector'buys the work with after-tax income. Any gain is properly treated as an investment return and is eligible for capital gain benefits.' The collector, however, does not escape questions of tax characterization entirely. Often his motive in acquiring the work reflects the happy con- gruence of personal gratification and investment opportunity. If' the former dominates, the transaction loses its profit-seeking character and, with it, the deductibility of losses and certain expenses.2 In contrast, the artist acquires his work only partly with tangible in- vestment, such as canvas and paint or clay; he adds his personal efforts which often are the chief source of the work's value. The artist pays no tax on this value he creates with his services until he realizes income in some way, as by the sale of the work. The return to the artist is partly personal services income and partly payment for holding the work after completion, a kind of investment return we shall examine further.3 In addition, the artist's deduction of certain expenses and losses may depend on his state of mind; like the collector, he may find it necessary to distinguish his profit-seeking activities from his pleasurable ones.4 This Article traces these income tax distinctions through a number of common transactions, including sale of property at a gain, sale of prop- erty at a loss, expenses incurred to produce or preserve the property, exchanges, and gifts to charity. In each case, the treatment of collectors and artists is contrasted and the appropriateness of any differences is considered. This Article limits the analysis to artworks embodied in the form of unique tangible personal property, primarily painting and sculpture; although some of the discussion bears on authors, book collec- tors, and others, this Article does not deal with the tax problems of their transactions. As we will see, most of the differences in treatment derive from the t @ Alan L. Feld, 1980. An earlier version of this paper was presented to the Boston Tax Forum, September 10, 1979. * Professor of Law, Boston University School of Law. A.B., Columbia College, 1960; LL.B., Harvard Law School, 1963. See notes 10-22 and accompanying text infra. 2 See notes 72-86 and accompanying text infra. See notes 23-34 and accompanying text infra. 4 See notes 87-104 and accompanying text infra. 625

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