US Copyright Office on Artist Resale Rights: Full Text

Artist Resale Rights in the US?

“In general, visual artists do not share in the long-term financial success of their works. […] Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors, and art galleries. Moreover, the income typically available to other authors through reproduction and derivative uses of their works is more limited for artists. […]  The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party.”


Judge Block’s reasons for not saving 5Pointz.

“Although the works have now been destroyed—and the Court wished it had the power to preserve them—plaintiffs would be hard-pressed to contend that no amount of money would compensate them for their paintings; and VARA—which makes no distinction between temporary and permanent works of visual art—provides that significant monetary damages may be awarded for their wrongful destruction.”

5pointz painted over.
5pointz painted over. Image via @thisistim712

15 Minutes on Starting a Non Profit Gallery


presents a pithy summary of things you need to know about starting your non-profit gallery. Click here for the Stropheus YouTube Channel


This presentation will focus on two main issues; forming your non profit gallery and keeping the tax exempt status.

I manage the nonprofit tax compliance practice at Wegner CPAs. We work with over 700 tax-exempt organizations annually. I have also helped numerous organizations get tax exempt status over the 9 years of my career. In this presentation, I would like to share with you my experience in helping organizations obtain tax-exempt status and what needs to be done to maintain this status.

I will go over the benefits of nonprofit galleries, talk about the steps needed to get your tax exempt status, and finally, discuss the filing requirements to maintain the tax exempt status.

How can the artists and the art community benefit from this additional funding? Nonprofit galleries do not primarily depend on sales for funding. This means that they can show more experimental work. This opens many doors for emerging artists or artists with edgier work. Nonprofit galleries can be an excellent way to network for the artists. Spending time at these galleries gives artists opportunities to meet other artists and invite them to their studios. Finally, fundraising auctions can be a great marketing tool for the artists. They can donate their work to be sold to benefit the gallery. This will give them the ability to show their work to the community.

Now the technical and boring part! What steps are required to get access to all these great benefits?

First, you need to file Articles of Incorporation with the State of New York. You have to file as a nonstock nonprofit corporation. You must also list a registered agent who has a physical address in New York.

Second, you need to obtain an Employer identification number from the Internal Revenue Service. This can be done online and it only takes a few minutes.

Third, you need to create bylaws of the organization.

After these steps, you will be ready to file IRS Form 1023, application for recognition of exemption under section 501 c 3 of the Internal Revenue Code. This form is your key to obtain the tax exempt status. Please keep in mind that only nonprofit galleries that have a tax exempt status can enjoy all the benefits discussed earlier. Finally, you need to register with the State of New York as a charity.

Since it is the most important form for obtaining a tax exempt status, I would like to give you an overview of Form 1023. This is a 12 page form with 12 parts and generally requires a few pages of attachments. I will mention the 6 more important parts. The form asks general questions about the applicant entity such as name, address and organizational structure. Detailed narrative description of activities needs to be provided for the IRS to determine whether you have an tax exempt purpose. You will also need to report compensation and other Financial Arrangements for the directors and employees of the organization. It asks about your planned specific activities such as lobbying or methods of fundraising. It also requires past financial data and projections to cover a total period of 3 years. For example, if the organization has been in existence between one to two years, you will need to report the financial data for the past year and project financials for the next 2 years.

Now, let’s talk about the common mistakes made in the formation process. Organizations not getting professional help would be risking both their time and money. The first common mistake is forming the wrong type of entity. The organization needs to be formed as a non-stock nonprofit corporation. Keep in mind that the employer identification number and articles of incorporation applications are irrevocable. Any major mistakes may require the organization to be dissolved which means more time and money down the drain. Not having a specific enough charitable purpose statement in the bylaws is the number one rejection reason of a form 1023 application. It is very important that this statement is prepared very carefully. The other common mistake is filing an incomplete Form 1023. If the organization has a specific enough charitable purpose and if the form 1023 is completed accurately, the application will get in the fast track to be processed by the IRS. Incomplete application will result in a correspondence from the IRS. Each correspondence will delay the process by approximately 6 weeks. If you are like most people, any IRS correspondence creates some stress. It will also take from your valuable time from doing the work you have the passion for.  Having a complete form 1023 may save you up to a year in the approval process. Finally, there is a great advantage to file the form 1023 within 27 months of formation of your entity. If you file within 27 months of formation, your tax exempt status takes effect from the formation date. This means that all donations you receive since the formation will be tax deductible. If the filing is made after 27 months of formation without a reasonable cause, the tax exempt status will take effect on the form 1023 filing date. In addition, you will need to file an additional schedule with your Form 1023.

So after all this time and energy spent to obtain the tax exempt status, how do you maintain it? Well, you have to comply with the annual filing requirements of the IRS and state of New York.

Let’s go over the IRS form 990 filing requirements. The type of the form 990 to be filed depends on the gross receipts of the entity. Gross receipts generally equal revenue of an organization. If your gross receipts are under $50,000 you can file a form 990-N. This is a very short form and can be completed online. If your gross receipts are under $200,000 and total assets are under $500,000, you can file a 990-EZ. If the gross receipts are over $200,000 or assets are over $500,000 you will have to file a Form 990. These thresholds are the minimum filing requirements. Please keep in mind that you can choose to file a 990-EZ if the gross receipts are under $50,000 or you can file a form 990 if your gross receipts are under $200,000. Should your gallery have any unrelated business income such as advertising, you will need to file a 990-T to report this taxable activity.

In addition to filing a form 990 with the IRS, you need to file form Char500 with the State of New York. The state requires an independent review report to be filed if the total support and revenue is between $100,000 and $250,000. If the total support and revenue is over $250,000 you will need to file an independent audit report. The state is currently discussing increasing the thresholds for the audit and review requirements.

There are also large penalties involved for failing to comply with NY’s filing requirements. Your registration would be revoked if the reporting requirements are not complied with. Attorney General may also seek civil penalties of $1,000 per violation and up to $100 per day for noncompliance.

Forming a nonprofit organization and maintaining tax exempt status is not a very hard job. However, you need to plan it right and have a strategy. You must create a charitable purpose and be dedicated to it. You need to be patient. The process may take over a year. You need to dedicate resources and get professional help in the formation process. If you rely on inexperienced volunteers or generalists to get the non profit law job done, you may end up with delays in your application process or large penalties.



Deaccessioning Detroit Institute of Arts Refuted by Attorney General

Detroit’s emergency manager Kevyn Orr’s deaccession plans at the Detroit Institute of Arts are at the centre of the continuing struggles related to the value of artworks and the economic plight of the institutions that hold them. A national survey conducted in 2012 by the American Association of Museums reported that 70% of the 383 museums queried are in economic stress, with 32% suffering ‘severe’ or ‘very severe’ stress. Michigan Attorney General, Bill Schuette issued an opinion on June 13th, 2013 in which he categorically affirmed that:

It is my opinion, therefore, that the art collection of the Detroit Institute of Arts is held by the City of Detroit in charitable trust for the people of Michigan, and no piece in the collection may thus be sold, conveyed, or transferred to satisfy City debts or obligations. In issuing this opinion, I recognize the serious financial hardships that face the City, the difficulties that the people who live and work in the City have endured for decades, and the many challenges facing the citizens of the City of Detroit and the State in the future. Yet, in the 128 years since the creation of the Detroit Institute of Arts, at no time have the people demanded that their most precious cultural resources be sold in order to satisfy financial obligations. To the contrary, the citizens of this State recognize that abandoning or selling the public’s artwork would damage not only the City’s but the State’s cultural commonwealth. In Michigan, we not only appreciate our cultural treasures, we guard them zealously in charitable trust for all state residents, present and future.

Schuette’s strong positioning, although in itself not legally binding, confronts deaccessioning adherents with a catalog of contractual and statutory obstacles. Schuette’s role is key, as the core debate will revolve around the nature and scope of fiduciary obligations of those holding the works.  The Attorney General has the legal mandate to enforce fiduciary obligations in the trusts which structure the DIA’s collection. As we have seen in the case of the Barnes Museum, the actions of the Attorney General are central to potential outcomes.