Monday, August 9, 2010

Tax-free housing benefits?

In today's New York Times: Plum Benefit to Cultural Post: Tax-Free Housing

In addition to her $877,000 compensation package, Ellen V. Futter, president of the American Museum of Natural History, lives rent free in a $5 million East Side apartment that the museum bought when she came aboard.

The Metropolitan Museum of Art houses its director, Thomas P. Campbell, in a $4 million co-op that it owns across Fifth Avenue from the museum.

The director of the Museum of Modern Art, Glenn D. Lowry, may have the best deal of all. In addition to the $2 million in salary and benefits he earned last year, he lives in a $6 million condominium in the tower atop the museum.

But it’s not just the nice — and free — digs: None of these museum heads pay income tax on the value of the [free] housing they receive, which combined would rent for about $400,000 a year.

This is just wrong.

The non-profit sector already gets a generous helping of tax benefits at the expense of the general taxpaying public. If they want to provide free housing to their employees, that is their prerogative, but it ought to be treated as taxable compensation unless there is a clear business necessity.

Tax law says that employees can exclude the value of free housing provided by their employers if it is provided as a condition of employment for an employer who has good business reasons to require the employee to live in that housing.

Claiming that exclusion makes complete sense if we are talking about resident assistants required to live in the dorms with the students, custodians required to live 24/7 in an apartment building to deal with middle of the night emergencies, camp counselors required to live in cabins with their charges, park rangers required to live on the grounds to be on watch for emergencies around the clock, or sailors in bunks on a submarine.

It makes very little sense if we are talking about highly paid museum executives in New York City. As I noted above, tax-exempt cultural institutions already get lavish subsidies through our tax code, which are increasingly hard to justify in such difficult fiscal times. This one strikes me as clearly abusive.

Apparently some museums and their tax advisors agree with me. The New York Times reports:

“Claiming a Section 119 exclusion because the residence is ‘necessary’ for entertaining prospective donors periodically is difficult to justify,” said Charles M. Watkins of Webster, Chamberlain & Bean, a law firm that specializes in nonprofit law. “Most museums already have appropriate spaces in which to entertain donors.”

The Los Angeles County Museum of Art said its director, Michael Govan, also used the home it provides to entertain. But it reports the value of the home as income to him, on which he pays taxes.

“Based on the current circumstances and the tax advice we’ve received, the use of the residence is not considered a nontaxable condition of employment,” said Barbara Pflaumer, a spokeswoman for the Los Angeles museum.

The Morgan Library & Museum, in the former mansion of the financier J. P. Morgan, goes further. It not only charges its director, William M. Griswold, rent on his apartment in Murray Hill, but also reports the difference between the paid rent and the market rent as taxable income on his W-2 form.

“We treat it in a very straightforward, some might say conservative, manner,” said Patrick Milliman, a spokesman for the Morgan.

Homeowners who struggle to pay their housing costs, including rising property tax bills, might wonder why these highly paid executives do not have to pay any tax on the value of the free housing they receive.

1 comment:

  1. Wow!

    Thank You very much for shining the light on this.

    I wonder how widespread this practice is and what is the revenue loss from this.