Tax Court Declares Woman’s Art to Be a Business; Decision Hailed as Victory for All Artists
In a ruling widely regarded as a success for artists of all varieties, from independent musicians to photographers and painters, the US Tax Court rejected an Internal Revenue Service decision that a well-respected painter and art professor’s painting work was not an activity conducted for the purpose of making a profit. The court explained that the law looks at many factors for determining the nature of an activity, and the painter’s clear proof of a business plan and maintenance of a “businesslike” record established that her painting was a for-profit activity.
Susan Crile worked both as a tenured professor of studio art and as a painter. Crile had been successful as a painter for years, but she achieved enhanced notoriety in the early 2000s for her work related to the events occurring at the Abu Ghraib prison in Iraq. Despite favorable reviews and high notoriety in the art world, Crile did not make much money from her art. In several of her federal income tax returns, Crile maintained that she lost thousands of dollars conducting her painting business and reported her income accordingly. The IRS rejected the painter’s claims. The agency concluded that painting was not an activity in which Crile engaged for the purpose of making a profit, so her losses were not deductible. The tax court, however, sided with the painter. The court pointed out that Crile, although her painting business was rarely profitable, was highly successful. She exhibited her pieces in some of the finest galleries, including the Metropolitan Museum of Art and the Guggenheim Museum. Crile also had received many fellowships, residencies, and professional awards, and she had sold some of her works to major corporations like AT&T, Exxon, Texaco, Bank of America, Chase Bank, Charles Schwab, General Mills, Wesingthouse, and Frito-Lay, along with six major New York City law firms, the US State Department, and the Library of Congress. The painter’s works, during the years 1971-2013, had sold for nearly $1.2 million, but high gallery commissions and other expenses had left her with an income of less than $670,000 from these sales.
Crile also actively worked on marketing her painting business, obtaining representation by a well-known gallery, Michael Steinberg Fine Art, and sending announcements and promotional mailings to the 3,000 names on her mailing list.
The court concluded that this evidence was enough to prove that Crile painted for the purpose of making a profit. Taxpayers can establish that an activity is for the purpose of making a profit by going about that activity in a “businesslike manner,” such as having a business plan and maintaining “complete and accurate books and records.” Crile met both of these standards. The evidence showed that, although Crile “did not have a written business plan, she had a business plan and she pursued it consistently,” as demonstrated through her marketing efforts. Additionally, she had maintained business records that were as good as, if not better than, a previous artist whom the court ruled was engaged in a for-profit business. She had original receipts and invoices, along with detailed and largely accurate records regarding all of the art sales she had made going back to 1971.
In Crile’s case, the key to her success before the Tax Court was the evidence her lawyers presented to that judge. Her business records and proof of “businesslike” activity ultimately persuaded the court. In many cases, the difference between success and failure can be maintaining and then producing (when necessary) the right amount and right type of documentation. For top-level advice about your income tax returns, and the documentation you need to go with them, talk to the tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. Their extensive experience and skill can make sure that you are in the right position to defend your income tax returns. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.