One Matisse, Two Matisse: The Steal that it is this Summer

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By Irina Tarsis*

Matisse died in 1954; he was 84. The following quote is attributed to Matisse, and as he dreamt of being palatable to a diverse audience, he succeeded in winning over the hearts of many.

What I dream of is an art of balance, of purity and serenity, devoid of troubling or depressing subject-matter, an art which could be for every mental worker, for the businessman as well as the man of letters, for example, a soothing, calming influence on the mind, something like a good armchair which provides relaxation from physical fatigue.

First trained in law and later a student of art, already during his lifetime Matisse proved to be popular in different circles and demographics. His works were sold by Paul Rosenberg and Daniel-Henry Kahnweile, famous Parisian dealers. He enjoyed patronage of the who’s who among the major art collectors of the twentieth century, including Alfred Barnes and Sergei Shchukin. Indeed, he was a prolific artist with a long career, and thus those who wished to have a Matisse — private collectors, institutions, auction houses, hoarders, thief’s and forgers — could enjoy fruits of the new master’s imagination and labor.


Screen Shot 2014-07-08 at 4.53.58 PMOver the last couple of years, Venezuela has been in the news mostly due to political unrest, economic crisis and violence against street protestors. Serving as some positive news for a change, earlier this month numerous media sources  heralded the return of the 1925 Henri Matisse painting “Odalisque in Red Pants” to Venezuela. The painting, first acquired from a New York gallery in 1981 by the Caracas Museum of Contemporary Art in Caracas, disappeared from the museum sometime around 2002. Its loss was discovered only after the original “Odalisque in Red Pants” was offered for sale in Florida, meaning that the one on display in Caracas was a skillful forgery. (The story of the Caracas Matisse has been documented by Marianela Balbi). In 2012, the United States government seized the original painting in a sting operation in Miami. Almost two years later to the day, on 7 July 2014, the painting was finally returned to Venezuela.

According to some news sources, the authenticity of the piece was verified by “officials from the ministries of Foreign Affairs and Culture, the District Attorney, the Institute of Cultural Heritage, National Museums Foundation and the Body of Scientific, Penal and Criminal Investigations.”


Screen Shot 2014-07-10 at 4.27.13 PM
C. Gurlitt/Matisse’s “Seated Woman”

Also in 2012, Bavarian authorities seized an extensive collection of works of art on paper and oil paintings from a private residence in Munich. One of these works that became a poster child for the Schwabing Art Fund, aka the Gurlitt Trove, was Matisse’s 1921 portrait of a seated woman “Femme Assise/Sitzende Frau.” The discovery of the Fund/Trove containing works by famous artists, as well as the glacial pace of investigating the origins of these artworks following the discovery captured the imagination of provenance researchers, art lawyers, potential heirs and others.

We have reported already that the Task Force appointed to investigate the trove has little time to work through hundreds of oils and works of art on paper. However, they already concluded that “Femme Assise” was looted during World War II.

In a Press Release from 11 June 2014, the Head of the Task Force, Dr. Ingeborg Berggreen-Merkel, indicated that while the Task Force could not establish exactly under what circumstances and when the painting came into Gurlitt’s possession. Nevertheless, it was illegally taken from the collection of a Jewish French art dealer Paul Rosenberg. The decision as to whether the painting will be returned to the Rosenberg’s heirs or not by Gurlitt’s appointed heir “unrestricted and unfettered,” the Bern Art Museum in Switzerland has not been announced yet.


In conclusion: before more stolen, forged or other Matisse paintings come to light, mix yourself a Matisse cocktail, courtesy of Drinks Mixer:

  • 2.5 oz Stoli Ohranj vodka
  • some orange juice
  • some Chambord raspberry liqueur
  • 1 twist lime peel


About the Author: Irina Tarsis, Esq., specializes in art law, provenance research and cultural heritage law. She may be reached at

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.


Case Review: Frank Kolodny v. James Meyer, Fred Dorfman, and Dorfman Projects LLC (May 2014)

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By Jill A. Ellman*

2014-07-07A complaint filed in the Southern District of New York by Frank Kolodny on May 8, 2014, contains allegations for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and fraud in connection with the sale of artwork stolen from the studio of artist Jasper Johns, a major twentieth-century painter and sculptor.  As alleged in the complaint, the works were sold by Fred Dorfman and Dorfman Projects LLC; Kolodny purchased one of these sculpture in 2009.

In the past three decades, Johns has achieved great standing in the art marketplace. His work has been sold to private collectors and institutions in the high millions, with private sales valued at over 100 million USD.
The plaintiff, Frank Kolodny brought the lawsuit against defendants James Meyer, the former studio assistant of Jasper Johns, as well as Fred Dorfman, a well-known specialist in twentieth century art, and his gallery, Dorfman Projects LLC (collectively, the “Dorfman Defendants”).  Kolodny claims that the defendants falsely represented to prospective buyers, including Kolodny himself, that Meyer received twenty-two individual pieces created by Jasper Johns as a gift and produced accompanying fraudulent documents.

The complaint alleges that Meyer and the Dorfman Defendants engaged in an enterprise affecting interstate and foreign commerce, thus violating  RICO.  Specifically, from September 2006 to February 2012, the plaintiff contends that the defendants participated in a pattern of racketeering with the common goal to profit from the stolen artwork and used similar methods in order to perpetrate their fraud upon prospective buyers.  If successful with his RICO claim, Kolodny may be awarded  triple damages in the form of civil penalties.

In addition to the RICO and conspiracy to commit RICO violations and common law fraud, Kolodny also asserts causes of action for aiding and abetting fraud (against the Dorfman Defendants),  and breach of warranty concerning title and provenance of the artwork sold by the Dorfman Defendants to Kolodny under N.Y. U.C.C. § 2-313(1) and §13.01 of the New York Arts and Cultural Affairs Law. Kolodny seeks compensatory damages, punitive damages and attorneys’ fees.  By way of background, the complaint describes that from 1985 to 2012, Johns employed Meyer as his assistant to support him in creating his art and aiding Johns with record keeping in his studio.  Meyer had complete access to inventory numbers for each of Johns’ completed works.  In 2012, Johns learned that Meyer was stealing from him and selling incomplete artworks without authorization. (See “James Mayer Arrested and Indicted in Jasper Johns Art Theft.”)  The Dorfman gallery sold the stolen works for $6.5 million, and Meyer collected a commission of $3.4 million.  Meyer was later indicted on criminal charges, including the interstate transportation of stolen goods and wire fraud.  The Dorfman Defendants were not named in the criminal action.  The indictment against Meyer was unsealed to the public in August 2013.

Kolodny asserts that the Dorfman Defendants could not have possibly believed Johns generously gifted artwork valued at $6.5 million.  Thus, he contends that the Dorfman Defendants ignored significant red flags in agreeing to sell Meyer consignments: not only did the artwork lack an exhibition history, but Meyer insisted that the sale of any artwork remain confidential and prohibited the buyer from selling, loaning or exhibiting the artwork for an eight-year period.  Instead of conducting proper due diligence regarding the provenance of the stolen artwork, Kolodny asserts that the Dorfman Defendants  understood the risk they faced and demanded an exorbitant commission in the form of 50% of the sale proceeds, exceeding the standard amount of commission paid to dealers for consigning artwork from private collections.  Moreover, the Dorfman Defendants purportedly assisted in perpetrating the fraud by fabricating documents attesting that the stolen artwork was indeed gifted to Meyer.

Apparently in April 2009, the Dorfman Defendants contacted art dealer Francis M. Naumann to discuss an available Jasper Johns drawing. Naumann on behalf of his client, Kolodny, decided to purchase the drawing for the value of $400,000 after being reassured by the Dorfman Defendants that very few similar works existed and would appear on the market. When Kolodny purchased the drawing, he agreed to keep it in his collection, neither selling nor loaning it for an eight-year period, because Meyer, as an employee of Johns, represented that Johns would be offended if he learned that his employee sold his “gift.”
According to Kolodny, in connection with the sale, the Dorfman Defendants and Meyer sent Kolodny an affidavit attesting to the authenticity of the artwork.  The affidavit also represented that Meyer owned the drawing and had the authority to sell it.  In addition, the Dorfman Defendants represented that the drawing would appear in an upcoming Jasper Johns catalogue raisonné, attesting to the drawing’s authenticity.  As requested by Kolodny, thedefendants forwarded an image purporting to be a page from Johns’ studio ledger indicating that the drawing was in Johns’ archive.  Because the drawing was stolen and will not appear in an upcoming Jasper Johns catalogue raisonné as represented, Kolodny claims that his drawing is unsaleable and valueless.

Kolodny is an unfortunate, potential example of a bona fide purchaser who believes that he has taken the extra-precautionary steps and exercised due diligence in securing an artwork, but who may have been duped in the process regardless of any appropriate safeguards that he took.  By bringing a RICO claim, Kolodny hopes to materially increase his potential damage award.  This case may be compared to lawsuits brought by plaintiffs who were allegedly defrauded in connection with the sale of works sold by the Knoedler Gallery and its agents.  See, e.g.,  De Sole v. Knoedler Gallery, LLC  et al., Case No. 12 cv 2313 (S.D.N.Y. Sept. 30, 2013).  Unlike here, the De Sole plaintiffs were sold a fake, unauthentic work (the De Sole plaintiffs believed they were purchasing a work created by the artist Rothko).  Similar to this case, the De Sole plaintiffs also brought claims under RICO and common law fraud, which were upheld by the Southern District in September 2013.  In particular, the Southern District found that the plaintiffs’ RICO and fraud claims to sell fake artworks were adequately pleaded because the plaintiffs showed evidence that the Knoedler defendants were aware of the misrepresentations regarding the provenance and authenticity of the purchased artworks.

Kolodny’s RICO and fraud claims may likewise survive a motion to dismiss if the Southern District finds that his allegations establish that the Dorfman Defendants engaged in a scheme to defraud potential buyers.  For example, the fact that the Dorfman Defendants went out of their way to represent that the Johns work would appear in an upcoming catalogue raisonné, sought affidavits attesting to the fact that Meyer owned and had the right to sell the work, and produced a page from Johns’ studio ledger indicating that the drawing was in Johns’ archive, may all be indicators that the Dorfman Defendants were aware of their misrepresentations to establish a sufficiently pleaded RICO or fraud claim, rather than mere negligence.

Kolodny is represented by Judd B. Grossman, Esq. of Grossman LLP.  Adam D. Mitzner, Esq. of Pavia & Harcourt LLP has made an appearance on behalf of the Dorfman Defendants.


About the Author: Jill A. Ellman, Esq. is an associate at Tressler LLP focusing in the area of professional liability insurance coverage.  She maintains an active interest in art law.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Case Review: Schoeps v. Free State of Bavaria (June. 2014)

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By Chris Michaels*

P. Picasso, "Madam Soler" (1903)
P. Picasso, “Madam Soler” (1903)


On 27 June 2014, Judge Jed. S. Rakoff of the Southern District of New York issued an order finding that the court did not have subject matter jurisdiction to decide on the merits a Nazi-era looted art case. This case was brought by the heirs of the late Jewish banker, Paul von Mendelssohn-Bartholdy, against the Free State of Bavaria for a Picasso painting titled, Madame Soler.

The plaintiffs in this case, Julius H. Schoeps, Britt-Marie Enhoerning, and Florence von Kesselstatt, argued that Mendelssohn-Bartholdy was forced to part with his artwork in 1934 after two years of Nazi persecution. He transferred possession of Madame Soler to art dealer Justin K. Thannhauser, who remained in possession of the painting for the next 30 years. In 1964, Thannhauser, who at that time had relocated to New York City, met with Halldor Soehner, a Senior Curator of the State Paintings Collections Munich, an entity operating under the Bavarian State Ministry for Education and Cultural Affairs (the “Ministry”). Soehner’s New York trip was pre-approved by the Ministry.

Upon Soehner’s return to Germany in June of 1964, Soehner and Thannhauser began planning their next meeting, which was to take place in Europe. Soehner then sought approval from the Ministry for the meeting with Thannhauser, which occurred in France in August of 1964. The Bavarian Ministry approved Soehner’s trip to France to conduct negotiations and in an August 1964 letter to Soehner, Thannhauser confirmed the purchase of Madame Soler by the Bavarian State Paintings Collections. The purchase was publicized in the museum publications as well as local news outlets. The purchase price of the painting was 1,775,000 Swiss Francs. Additionally, the Letter Agreement between the two was signed in Europe, which the court surmised was an attempt by Thannhauser to avoid U.S. taxes, and the painting was located in Switzerland at the time of the sale. Further, a Lichtenstein entity “EBA, Vaduz,” which was controlled by Thannhauser, transferred the painting to the Bavarian State Paintings Collections and received payment on behalf of Thannhauser.

The issue decided by the instant order was whether jurisdiction over the Free State of Bavaria was appropriate under the Foreign Sovereign Immunities Act (“FSIA”).  Under the Act, jurisdiction over a foreign state is allowed in three circumstances:

  1. where a plaintiff’s claim is “based upon” “a commercial activity carried on in the United States by the foreign state”;
  2. where a plaintiff’s claim is “based upon” “an act performed in the United States in connection with a commercial activity of the foreign state elsewhere”; or
  3. where “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere causes a direct effect in the United States.”

Here, the Court ruled that the FSIA could be circumvented because the exceptions to allow jurisdiction over a foreign sovereign and its entity did not apply under any of the above circumstances where no agreement between Soehner and Thannhauser for sale of the painting was reached in New York and where Soehner did not take any concrete action toward the purchase of the painting until his return to Germany. With respect to the first prong of jurisdiction under the FSIA, the Court found that the merits of this suit, should they be reached, were not “based upon” Bavaria’s acquisition of the painting, “let alone activity in the United States.” The Court points out that the essence of Plaintiff’s complaint is that the title to the painting never rightfully passed to Thannhauser because the painting was consigned by Mendelssohn-Bartholdy as a forced transaction.

Thus, the Court ruled, the merits of the case would necessarily focus on the circumstances of the forced sale. The Court went on to note that Bavaria would not even be the defendant in the case “but for the fact that Bavaria purchased the painting from Thannhauser in 1964.” The Court held, among other things, that this “but for” reasoning was insufficient to satisfy the FSIA’s “based upon” requirement.

With respect to the second prong, the Court held that it is “generally understood to apply to non-commercial acts in the United States that related to commercial acts abroad.” This prong was deemed inapplicable by the Court, however, because the Plaintiffs’ failed to argue that any non-commercial acts by Bavaria formed the basis of the suit.

Finally, under the third prong, the court noted that two requirements must be satisfied to confer jurisdiction: 1) “there must be an act outside the United States in connection with a commercial activity of [Bavaria] that cause[d] a direct effect in the United States and (2) [plaintiffs’] suit must be based upon that act.” The Court held that the elements of this prong were not satisfied where plaintiffs’ only arguments were that Bavaria’s purchase of the painting would have a negative impact on the New York art market and that Bavaria’s activities furthered a conspiracy to evade United States taxes. The Court, therefore, dismissed the lawsuit for lack of jurisdiction.

Plaintiffs were represented by Thomas J. Hamilton and John J. Byrne, Jr. of Byrne, Goldenberg, and Hamilton, PLLC of Washington D.C., and Defendant was represented by Andreas A. Frischknecht, James M. Hosking, and Andrew L. Poplinger of Chaffetz Lindsey, LLP of New York.


  • Opinion and Order, Schoeps v. Free State of Bavaria, Case No. 13 Civ. 2048 (JSR) (S.D.N.Y June 27, 2014).
  • The Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2).

About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238,, or on Twitter @CMichaels88.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Detroit Institute of Arts Fights to Safeguard its Collection (Still)

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By Chris Michaels

On Tuesday, 27 May 2014, the Detroit Institute of Arts responded to the objections made by financial creditors of the City of Detroit (the “City”) to a proposed plan that would protect its collection from sale. The Detroit Institute of Arts’ (“DIA”) collection has been at the center of controversy in Detroit’s Bankruptcy proceedings and whether the collection can be sold to satisfy its financial obligations has been hotly debated.

In the Response, attorneys for the DIA explained why the Museum’s collection should not be the subject of a forced sale to satisfy the City’s financial creditors. The subject of the filing hinges on the issue of whether the City’s Fourth Amended Plan of Adjustment (the “Plan”) should be enforced. Part of this Plan stipulates that outside funders will provide at least $466 million USD to address the City’s obligation to its pensioners. The provision of the funds, however, is contingent upon the City transferring any interest it might have in the Museum’s collection to the DIA, which then must keep the collection in Detroit in perpetuity. Objectors to this plan, including certain bondholders, creditors, and the insurer of City obligations, argued that the DIA collection is a “non-core” asset, which can be sold to satisfy the obligations of the City in its Bankruptcy.

In the Response, the DIA set forth its argument in support of the Plan. At the heart of its argument, the DIA contends that the collection: 1) is not an asset of the City; 2) any attempted sale of the collection would result in protracted litigation; and 3) the proposed Plan is in the best interests of both the City and its creditors.

In support of its claim that the collection is not a City asset that can be sold to satisfy its obligations, the DIA argues that the collection is, in fact, held in a Charitable Trust. As part of this line of reasoning, the DIA claims that under its Articles of Incorporation, as well as the 1885 Act that created the DIA, a Charitable Trust was established for the benefit of the public stipulating the DIA as the trustee. Under the Charitable Trust that was established, the DIA, as trustee, does not have the power to sell the collection to satisfy the debts of the City. Additionally, the DIA noted that under its 1997 Operating Agreement, any proceeds from deaccessions must be used solely to acquire additional artwork. The DIA also argued that the acts of donors confirmed the existence of a Charitable Trust and that through conveyance documents and other records, the intent of the donors was to benefit the Museum and its charitable purpose, not to benefit the municipality.

The DIA also argued that the collection is not an asset of the City because the collection is protected by an Implied Trust. The DIA contends that an Implied Trust was created between the City and the DIA through such actions as the solicitation of charitable donations for the Museum, adopting policies limiting deaccession, and representing to the Public that the City held the collection in trust. The DIA also maintained that the collection was protected by the Public-Trust Doctrine, whereby governmental entities have a duty to protect resources held in trust for the public.

In the second prong of its argument in support of the Plan, the DIA asserted that any attempted sale of the collection would result in protracted litigation. Here, the DIA in essence threatened that if the City tried to transfer its interest in the collection in an attempt to satisfy its creditors, the DIA would file suit to block the sale. Because of the expense associated with the litigation, the DIA argued that enforcing the Plan is a more attractive alternative than further litigation.

Finally, the DIA made the claim that the Plan would be in the best interests of the City and the creditors. This argument is bolstered by the fact that outside funders will provide $466 million to the City to address its obligations and because the alternative to the Plan, namely the attempted sale of the collection, would result in the aforementioned protracted litigation.

The Response in support of the Plan by the DIA ended with an argument that the Museum is more than just a fiscal asset of the City. The filing reads:

The Museum is a core feature of the City’s future. It is the Cultural cornerstone of Midtown Detroit, providing a stable anchor for the cultural district and for the surrounding neighborhoods. The Museum draws economic investment to Midtown Detroit, is a selling point for business attempting to attract and recruit talent to the City, and is an important factor in decisions by businesses that are seeking to locate in the City. 

The fate of the DIA collection is scheduled to be decided by trial on 24 July 2014.

The DIA is represented by Arthur T. O’Reilly, Scott B. Kitei, and Daniel N. Adams from Honigman Miller Schwartz and Cohn LLP, and Richard Levin of Cravath Swain & Moore LLP.



Response of the Detroit Institute of Arts to Objections to the City’s Amended Plan of Confirmation, In Re: City of Detroit, Michigan, Case No. 13-53846 (Bankr. E.D.M.I. May 27, 2014). 

About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238,, or on Twitter @CMichaels88.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Art Law Visiting the Non-profit Side: On Qualifying for 501(c)(3) Status as an Arts Organization

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By Benjamin Takis*

2014-05-25 collage


New non-profit organizations often find that the world is not a hospitable place. While innovation, entrepreneurship, and risk-taking by new for-profit companies are lauded, fledgling non-profits typically struggle to gain the acceptance and support of private foundations, donors and others in the non-profit community. There is, after all, only a limited supply of grants and donations to fund charitable, artistic, and educational endeavors. Furthermore, the administrative burden of forming and administering a non-profit can be staggering. New non-profits are therefore often advised to pair up with an existing organization, use a for-profit structure, or explore other alternatives before forming a new entity and applying to qualify under section 501(c)(3) of the Internal Revenue Code (the “Code”).

Despite these challenges, arts organizations share certain traits that can help them thrive as non-profit 501(c)(3) organizations, with fewer of the hurdles faced by other kinds of non-profits. First, while many organizations rely largely on foundation grants and private donations, arts organizations can raise funds from ticket sales to performances, exhibits, and other events. For many kinds of organizations, these “fee-for-service” revenue sources can trigger “unrelated business income tax” or endanger 501(c)(3) status under the “commerciality doctrine” applied by the Internal Revenue Service (“IRS”) and the courts. However, these revenue sources are generally consistent with the tax-exempt status of arts organizations. Additionally, these types of revenue sources can more easily satisfy the “public support” tests that enable an organization to qualify as a public charity, and thereby avoid classification as a private foundation and the stringent oversight to which private foundations are subjected.

The Benefits and Burdens of 501(c)(3) Status

501(c)(3) is a special tax status under federal law, generally available to organizations formed and operated for a charitable, educational, scientific or religious purpose, and promotion of the arts is recognized as a valid educational purpose. Treas. Reg. § 1.501(c)(3)-1(d)(3)(ii), Example 4 (Educational organizations include “[m]useums, zoos, planetariums, symphony orchestras, and other similar organizations,” provided that the organizations otherwise satisfy the requirements of section 501(c)(3) of the Code). However, before embarking on the 501(c)(3) qualification process, it is important to carefully consider whether the benefits of 501(c)(3) status are worth the burdens.

There are three legal benefits to having 501(c)(3) status: (1) the organization’s net revenue (after expenses) is generally not subject to tax; (2) contributions to the organization are eligible for the charitable deduction; and (3) the organization is eligible for grants from private foundations.

These benefits are not quite as advantageous as they may appear. Most non-profits (including arts organizations) do not have large amounts of excess revenue – most struggle to earn enough revenue to pay their expenses. Therefore, the tax exemption on net revenue may not be crucial. Second, while the charitable deduction is a powerful incentive for individuals inclined to give money to non-profit organizations, it is still a difficult task to convince people to give. The charitable deduction tends to be important only when an organization’s Board of Directors has a strong and committed network of high-wealth individuals. Lastly, it can be difficult to get grants from private foundations. Finding grant opportunities takes significant research, and the grant writing process requires preparation, perseverance, and commitment.

Maintaining 501(c)(3) status can also be quite burdensome. A 501(c)(3) organization must be run by a Board of Directors (generally 3 or more people) in accordance with Articles of Incorporation, Bylaws, and various corporate policies that comply with requirements set forth under federal tax law and state non-profit corporation law. In addition, any compensation to Directors or Officers must be closely scrutinized to ensure that such payments are reasonable. And complex tax filings called the Form 990 (or Form 990-EZ) are generally required for organizations with gross revenue exceeding $50,000 per year, and are open to public inspection. (Organizations whose annual gross receipts are normally $50,000 or less, file a much simpler electronic form called the Form 990-N). These and other administrative difficulties are not typically worth the trouble unless 501(c)(3) status would significantly enhance an organization’s fundraising capabilities, or at least its image in the arts community.

Designing a Program of Activities to Qualify under 501(c)(3)

An arts organization that has thoroughly considered the benefits and burdens of 501(c)(3) status and wishes to move forward with the qualification process will need to design a program of activities consistent with 501(c)(3) status. It is important to be aware of which types of activities are acceptable and which activities raise suspicions at the IRS, and be able to show the IRS several bona fide activities that fit squarely within the traditional notions of a 501(c)(3) arts organization.

The exemption under section 501(c)(3) for arts organizations is based on the statutory exemption for “educational” organizations, so educational activities carry significant weight in the approval of 501(c)(3) status. Examples of educational arts organizations include:

  • An organization formed to promote the advancement of young musical artists by conducting weekly workshops, and sponsoring public concerts by the artists. Rev. Rul. 67-392, 1967-2 C.B. 191.
  • An organization formed to promote public appreciation of group harmony singing by holding frequent meetings of members where they receive training and instruction in vocal harmony and opportunities to practice under trained supervision. Rev. Rul. 66-46, 1966-1 C.B. 133.
  • A dance school with a regular faculty, daily comprehensive curriculum, and a regularly enrolled body of students. Rev. Rul. 65-270, 1965-2 C.B. 160.

Educational activities can also include individual instruction, or the dissemination of instructional materials for free or for a nominal charge. See Rev. Rul. 68-71, 1968-1 C.B. 249 (approving the 501(c)(3) status of an organization that provided career education by distributing educational publications at a nominal charge and providing free vocational counseling services).

Public exhibits or performances are also typically valid 501(c)(3) activities, provided that steps are taken to ensure that the selection of artists is disinterested (i.e. the organization is not merely a vehicle for showing the work of founders, directors or other insiders of the organization), and provided that the artists or works are chosen for their artistic merit rather than their ability to appeal to a mass audience. See Plumstead Theatre Soc’y, Inc. v. Comm’r, 74 T.C. 1324, 1332-1333 (1980), aff’d 675 F.2d 244 (9th Cir. 1982) (contrasting commercial theaters, which “choose plays having the greatest mass audience appeal … run the plays so long as they can attract a crowd …[and] … set ticket prices to pay the total costs of production and to return a profit,” with 501(c)(3) theaters, which “fulfill their artistic and community obligations by focusing on the highest possible standards of performance; by serving the community broadly; by developing new and original works; and by providing educational programs and opportunities for new talent.”). It helps if at least some of these exhibits or performances are open to the public for free.

For example, the IRS has approved the 501(c)(3) status of the following organizations:

  • An organization whose sole activity was sponsoring an annual art exhibit of artists selected by a panel of qualified art experts. Rev. Rul. 66-178, 1966-1 C.B. 138.
  • A filmmaking organization that organized annual festivals to provide unknown independent filmmakers with opportunities to display their films. Rev. Rul. 75-471, 1975-2 C.B. 207.
  • An organization that presented public jazz concerts featuring aspiring jazz composers and high school students performing alongside established jazz musicians. Rev. Rul. 65-271, 1965-2 C.B. 161.
  • A touring repertory theatre company that focused on works that were part of college curricula. Rev. Rul. 64-175, 1964-1 C.B. 185.

Note that the IRS views the exhibition of art much differently than the sale of art, especially with respect to the visual arts. The IRS typically denies 501(c)(3) status to art galleries that engage in the sale of art for a commission. See Rev. Rul. 76-152, 1976-1 CB 151 (rejecting the 501(c)(3) status of a gallery formed to promote modern art trends by exhibiting works of modern artists and selling the works on consignment basis with the artist setting the selling price and the organization keeping a 10% commission, even though this commission was lower than that charged by commercial entities and the gallery planned to supplement its revenue through donations); Rev. Rul. 71-395, 1971-2 CB 228 (rejecting the 501(c)(3) status of a gallery formed and operated by approximately 50 artists for the purpose of exhibiting and selling the work of the founders).

Gallery sales activities are permitted only under very limited circumstances when sales activities are sufficiently minor in comparison to educational and other valid 501(c)(3) activities. Goldsboro Art League, Inc. v. Comm’r, 75 T.C. 337 (1980) (approving the 501(c)(3) status of a gallery that engaged in some sales for commissions in addition to educational activities, based on the following factors: (1) there were no other museums or galleries in the area, thus, the exhibition of art works showed a purpose primarily to educate rather than to sell and the selling activity served merely as an incentive to attract artists to exhibit their work; (2) works were selected by an independent jury for their representation of modern trends rather than salability; (3) the organization demonstrated that educational activities were its priority; (4) the art sales were not conducted at a profit; and (5) of more than 100 works of arts exhibited in the organization’s galleries, only 2 members of the organization had their art exhibited).

Most 501(c)(3) arts organizations focus predominantly on education and/or public exhibits or performances, but other types of activities can be acceptable as well. For example, the awarding of grants to aspiring artists and students is a permissible 501(c)(3) activity, provided that procedures ensuring disinterested selection of winners are developed and scrupulously followed. See Rev. Rul. 66-103, 1966-1 C.B. 134 (approving the 501(c)(3) status of organization formed for the purpose of making grants available to writers, composers, painters, sculptors, and scholars for projects in their respective fields which they would not otherwise be able to undertake or finish due to the lack of funds. In awarding grants, preference was given to persons showing distinction or promise in their respective fields, and the recipients promised to make their work available for the benefit of the public in ways customary and appropriate to the particular work. The organization received no financial benefit from these grants).

The IRS has also approved of activities promoting the appreciation of art by less traditional means, such as the recording and sale of obscure classical music pieces to educational institutions, Rev. Rul. 79-369, 1979-2 C.B. 226, and a museum’s sale of greeting cards displaying printed reproductions of selected works from the museum’s collection and from other art collections. Rev. Rul. 73-104, 1973-1 C.B. 263. However, these types of non-traditional promotional activities should be approached with caution, as they implicate difficult issues that can lead to unpredictable results from the IRS. See e.g. Rev. Rul. 76-206, 1976-1 C.B. 154 (rejecting the 501(c)(3) status of an organization formed to generate community interest in classical music by urging the public to support the classical music program of a for-profit radio station).

In summary, when applying for 501(c)(3) status, an arts organization should be prepared to describe several activities similar to those approved by the IRS. There should be at least some educational component, whether through workshops, classes, online publications or tutorials, or other means. It is helpful to show engagement with the public or local community through free exhibits or performances, and to focus on art that lacks mainstream commercial viability. Lastly, an organization founded or run by artists should make sure to focus on a wide variety of artists rather than just its founders or members.

About the Author: Benjamin Takis is the founder and principal attorney of Tax-Exempt Solutions, PLLC. He may be reached at

Disclaimer: This publication is provided for educational and informational purposes only and does not contain legal advice. Accordingly, you should not act on any information provided without consulting legal counsel. To comply with U.S. Treasury Regulations, we also inform you that, unless expressly stated otherwise, any tax advice contained in this publication is not intended to be used and cannot be used by any taxpayer to avoid penalties under the Internal Revenue Code, and such advice cannot be quoted or referenced to promote or market to another party any transaction or matter addressed in this publication.

Case Review: Scher v. Stendhal Gallery, Inc., et al.

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By Chris Michaels, Esq.

Puala Scher, “South America”

A recently decided case out of the New York Supreme Court, Appellate Division, First Department may have some New York galleries re-evaluating the contracts they have with their artists. On 27 March 2014, the court decided whether Paula Scher, an artist, had ownership of 320 unsold fine-art silk-screen prints made from her paintings that the Gallery had printed for approximately $300,000. Based on the agreement between the parties, the court held that the Gallery had left itself exposed upon the agreement’s termination and, even though it had laid out the costs for production, Scher was the sole owner of the prints.

Plaintiff in the case, Paula Scher, a nationally known graphic designer, is also a well-recognized fine art painter. She has a BFA from the Tyler School of Art at Temple University in Philadelphia and has been a principal at Pentagram, one of the world’s largest independent design consultancies, since 1991. As a graphic designer, she has developed branding and marketing for clients including Coca-Cola, Perry Ellis, and Microsoft. Her artwork is in the permanent collections of some of the most distinguished museums in the United States, including the Museum of Modern Art, the Philadelphia Museum of Art, and the Denver Art Museum.

At the heart of the lawsuit Scher brought against the Stendhal Gallery, Inc., a New York art gallery established in 1990, was an agreement both parties entered into in 2005 for the sale of a series of 12 map-based paintings Scher created.  The consignment agreement between Scher and the Gallery indicated that the Gallery would sell the map paintings and any future works Scher might create during the agreement’s term.

Specifically, the agreement noted that, “[t]he Artist [Scher] appoints the Gallery to act as Artist’s exclusive agent in the following geographic area: exclusive worldwide for the exhibition and sales of artworks in the following media: original paintings / Works on Paper / limited edition prints published exclusively by Gallery and Digital / electronic art for computers.” While the written agreement was in effect, Scher and Maya Stendhal, at the time a principal of the Gallery, entered into a separate oral agreement whereby Scher granted the Gallery a license to produce prints based on Scher’s Map paintings. Pursuant to the second agreement, the Gallery would produce the prints at the Gallery’s expense and the proceeds of any prints that sold would be split with 90% going to the Gallery and 10% going to Scher.

After Scher and Stendhal entered into the second agreement, the Gallery then hired a printer to make the prints. The Gallery took possession of the prints from the printer and incurred approximately $300,000 in costs between printing and selling some of the prints. The prints were then advertised for sale for between $3,000 and $15,000. The Gallery generated $1,388,680 from sales of the Map paintings, but paid Scher only $15,000. Pursuant to the oral agreement, she was due $138,868.

In May of 2010, counsel for Scher notified the Gallery that the 2005 written agreement and the oral agreement were terminated and, at the same time, demanded that the Gallery return any unsold paintings and prints. Shortly thereafter, Scher initiated her lawsuit against the Gallery for, among other things, the unsold prints that the Gallery possessed.

In the underlying case, the Supreme Court’s initial judgment granted ownership of the 320 unsold prints to Scher. At the same time, however, the court ruled that the Gallery was entitled to 90% of the proceeds of the re-sale value of the unsold prints. In the ruling, the Court looked to New York Arts and Cultural Affairs Law §12.10, which deals with artist-merchant relationships. The court held that under the law, Scher owned the prints but that it did not defeat the Gallery’s contractual right to 90% of their resale value. In response to the Court’s ruling, Scher moved for re-argument to eliminate the Gallery’s right to a portion of the resale value, among other things.

On re-argument, the Court held that the oral argument between Scher and the Gallery established a split of proceeds only at such time as the prints were sold. In its amended judgment, the Court granted Scher ownership of the 320 prints and held that the Gallery was not entitled to any share of the value of the unsold prints but was, however, entitled to recover the costs incurred in having the prints made. The Gallery appealed this ruling, seeking full ownership of the prints under the Uniform Commercial Code or, in the alternative, a 90% share of the resale value of the unsold prints.

On appeal, the Appellate Division did not look to either the UCC or the New York Arts and Cultural Affairs Law in deciding the case. Instead, it simply relied on the 2005 contract between Scher and the Gallery. The Court noted that the agreement provided that the Gallery would act as Scher’s “exclusive agent” for the exhibition and sales of the prints. Therefore, the Court reasoned, when it hired and paid the printer to make the prints, “it did so as Scher’s agent and, hence, fiduciary.”  The Court further reasoned that as Scher’s fiduciary, the Gallery was obligated to disclose to Scher that it would own the prints after they were made, if that is what the Gallery’s understanding was. The Court noted that if the Gallery wished to own the prints that it financed, it could have sought to reach a separate agreement with Scher regarding ownership. Further, the Court noted that the Gallery, “left itself exposed by going forward with the print deal based on only a vague, unwritten agreement that left nearly all of the terms up in the air . . . .”

Additionally, the Court stated that the Gallery, as a fiduciary, acted carelessly in dealing with its principal. The Court was especially hard-pressed to give any leeway to the Gallery as fiduciary because the 2005 written agreement provided that any modification of its terms must be in writing and signed by both parties.

Ultimately, the Court awarded full ownership of the unsold prints to Scher and held that she had no obligation to reimburse the Gallery for either printing costs or resale value. The Court’s ruling here should act to remind Galleries that under consignment deals such as this, before any substantial amount of money is laid out for the creation of prints, Galleries, as fiduciaries to the artists with whom they contract, should be very clear about their intentions to own unsold prints.

Plaintiff was represented by Judith M. Wallace, Jeffrey L. Loop, and Michael H. Bauscher of Carter Ledyard & Milburn LLP. The Gallery was represented by Michael C. Ledley and Melissa A. Finklestein of Wollmuth Maher & Deutsch, LLP.


About the Author: Chris Michaels is a litigation attorney in the Philadelphia office of the Atlanta, GA-based law firm, Cruser & Mitchell, LLP, where he actively pursues his interest in the field of art law. He may be reached at (518) 421-7238,, or on Twitter @CMichaels88.

Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.

Conserving v. Rebuilding Afghanistan’s Bamiyan Buddhas

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By Lauren Bursey

feet of Bamiyan-Buddhas
Feet of Bamiyan-Buddhas
bamiyan valley
Bamiyan Valley

In March 2001, the Taliban, at the time the government in Afghanistan and later a terrorist group, ordered the destruction of the giant Buddhas, which had been carved into the Bamiyan Cliffs in the6th century. The Buddhas, standing 55m and 38m high, were a monumental expression of western Buddhism. The entire Bamiyan Valley had been an important spot for the Gandhara school of Buddhist art, an area which was a long-revered pilgrimage centre from the 1st to the 13th centuries. The Valley was determined by UNESCO to have “Outstanding Universal Value” and the Buddhas were designated a World Heritage site following a review in 2002. Since their destruction, the site has faced issues of reconstruction, insufficient funds, the need for continuing tourism in the Valley, and religious tension.

After the Buddhas were blown up, UNESCO tasked ICOMOS (International Council on Monuments and Sites) archeologists from Germany with restoring the niches in which the Buddhas had rested, as well as the network of caves in the Bamiyan Valley. To explain, ICOMOS is an entity created by UNESCO in 1964 and only acts in an advisory capacity to the broader UN organization, and thus UNESCO has the authority over ICOMOS to enforce their decision to stabilize the site. UNESCO mandated that the goal of this project was to ensure that the area was safe for visitors (no falling rocks, a railing, etc.), that the niches were not subject to further damage, and that what remained of the artifacts was properly preserved. The Afghan Government made it clear by asking UNESCO for aid that they are in need of funds in order to stabilize their historic sites, and furthermore that they are reliant upon the funding that international organizations such as UNESCO and ICOMOS can provide. It is important to note that in 2011, at the 10th Expert Working Group Meeting for the Safeguarding of the Cultural Landscape and Archaeological Remains of the Bamiyan Valley World Heritage Property, UNESCO decided not to rebuild the statues, arguing that they would be best remembered by their absence. Their decision was made in light of “the available scientific data and estimated financial requirement.” Nevertheless, according to UNESCO, ICOMOS took its mandate too far and started rebuilding the statutes. As a result, when it was discovered that the ICOMOS team had started to rebuild the legs of the Eastern statue, UNESCO furiously shut down the project.

A large part of the issue seems to stem from ICOMOS Germany overstepping its bounds with regards to what UNESCO had mandated. Yet statements by Afghan Government officials give support to ICOMOS’ actions. H. E. Omar Sultan, the Deputy Minister of Information and Culture of Afghanistan, made this remark at the UNESCO Forum, March 2 2011:

“I believe that if we are to undertake any sort of remedial measures to rebuild or

partially rebuild the statues of Bamiyan, it should be for this higher goal of the site of

Bamiyan as a symbol of memory of the tragedy of war and conflict in Afghanistan and

as a statement of peace and hope for a better future.”

For the Afghan administration, rebuilding one of the statues would be a symbolic victory over the militant Taliban. Not rebuilding the statue, the Afghans feel, would be akin to admitting defeat at the hands of the Taliban while depriving future generations of the opportunity to appreciate these monuments first-hand. Afghan monument protection law requires Afghan Government approval for changes made to heritage sites, which ICOMOS acknowledges, but due to funding control, UNESCO is the body with the real authority. Work was halted not because the Afghans had a problem with ICOMOS’ work, and thus ordered it stopped, but because UNESCO felt that ICOMOS was rebuilding rather than only stabilizing the site. The order to halt work was carried out despite the Afghan Ministry of Culture, the Bamiyan Tourism Association, and the Bamiyan deputy governor all being in agreement that at least one Buddha should be rebuilt. Further complicating the situation, UNESCO and the global heritage protection community are worried about offending Afghan Muslims in dealing with the Bamiyan Buddhas. Due to Islam’s ban on religious idolatry and anthropomorphic images, the monumental Buddhas were subjected to frequent harm over the years, so that by 2001, the statues were heavily pockmarked by bullet holes and missing their faces. While UNESCO is extremely sensitive to giving offense, this sensitivity hinders many restoration efforts, as ICOMOS has encountered. Contrary to UNESCO’s approach, current Afghan domestic policy seems intent upon a more progressive stance, which allows for multiple religious symbols to be displayed.

The Afghans and UNESCO can agree on at least one thing: the need for tourism in the Bamiyan Valley. The Valley’s importance to world heritage had made it a site to which tourists flocked, helped by the site’s presence on the World Heritage list, at least until the destruction of the statues. Since then, unsurprisingly, tourist visits have declined significantly, along with the much-needed revenue. UNESCO has plans to reinvigorate the area economically without rebuilding the Buddhas, including the building of a cultural centre and museum, a bazaar, and the restoration of the interconnected caves at the site of the ancient city Shahr-I Ghulghulah. Whether or not these plans have been discussed with the Afghan government and found appropriate by the Afghans has yet to be determined. Abdullah Mahmoodi of the Bamian Tourism Association, for his part, believes that rebuilding at least one of the two statues is the best way to encourage tourism.

The final large issue that UNESCO is struggling with is the ethical dilemma between restoration and reproduction. Perhaps most importantly, UNESCO officials claim that the niche in which ICOMOS was working had not even been stabilized prior to the archaeologists starting to restore the statue’s feet. Both Michael Petzet, leader of the German ICOMOS team and former head of ICOMOS, and Francesco Bandarin, UNESCO’s assistant Director-General for Culture, each report that the Afghan government was in full agreement with the aims and activities undertaken by their respective organizations. ICOMOS Germany’s report on the matter continues to emphasize that their “safeguarding and stabilizing” measures were carried out with the knowledge and consent of Afghan authorities and UNESCO representatives. Whether or not the feet should be restored depends upon the amount of shards which remain after the Buddhas were blown up, a quantity about which once again the two organizations disagree. Regardless of the exact number of shards however, little of the once-monumental statues seems to remain, leaving archaeologists in the precarious position of either leaving the site as-is, which UNESCO would prefer, or attempting to rebuild part or all of a statue, the attempt which led to the controversy.

The Venice Charter of 1964, the same year of ICOMOS’ establishment, outlines that only anastylosis, or “the reassembling of existing but dismembered parts” is permitted on excavation sites, rejecting reconstruction outright. Otherwise, there is the possibility that the ruin will be distorted and its integrity damaged. With a lack of pieces (or shards), there would be little to preserve and thus no way the statues could be rebuilt without starting from scratch. However, the 1970s saw reconstruction of the Buddha’s feet carried out during a restoration campaign by an Indian/Afghan team. According to ICOMOS’ report of July 2013, when the current ICOMOS team arrived on the scene, they determined that the best way to properly stabilize and reinforce the Eastern niche was to create a system whereby the rear wall was coupled with the remains of the statue, necessitating that the feet were rebuilt. In a New York Times article this past March, Petzet references the Roman Forum and numerous French cathedrals as places where renovation work leaned more to reproduction and re-creation than anything else. He believes that there is no reason why a similar approach could not also be employed in Afghanistan. UNESCO, on the other hand, feels that only that which can be preserved with original material should be, and would prefer to uphold the principles of the Venice Charter.

At present, there is only one other site in Afghanistan with World Heritage status, the Minaret and Archaeological Remains of Jam, which is also listed as a cultural site in danger along with the Bamiyan Valley, all at the request of the Afghan government. A site’s status as a property in danger provides it with access to further conservation funds and “encourages corrective action.” The World Heritage List includes 981 properties, a mix of both cultural and natural monuments, across 190 countries. A site can be removed from either or both lists if the characteristics of its original nomination no longer exist. Hopefully the confusion as to the mandate of the UNESCO/ICOMOS project in the Valley is resolved before the collapsing niches and deteriorating shards of the Bamiyan Buddhas permanently debase the historic site.

About the Author: Lauren Bursey is a BA candidate at the Trinity College, University of Toronto; she is working toward a double major in History and Classical Civilizations and Language Citation.


Disclaimer: This article is intended as general information, not legal advice, and is no substitute for seeking representation.