There are many definitions of art (Leo Tolstoy: “a means of union among men, joining them together in the same feelings, and indispensable for the life and progress toward well-being of individuals and of humanity”; Oscar Wilde: “the most intense mode of individualism the world has known” – that sort of talk), but far fewer definitions of artist. We are quicker to think of the term as a value judgment than as something hard and fast. Lots of people want to be viewed as artists, from employees of tattoo parlors (body artists), chefs (culinary artists) and exotic dancers (performance artists). According to the bylaws of the National Watercolor Society, “Associate Membership is open to anyone,” and the National Sculpture Society proclaims that “If you create, collect, or just plain love sculpture, please join us as an Associate Member.”
Perhaps, a definition doesn’t matter, but the subject of identifying who is a professional artist does arise from time to time, for instance, when a foundation or government agency looks to award a grant or fellowship or during a census year when the U.S. government tries to count how many people are employed in this or that profession.
The Internal Revenue Service also cares, which is why for a period of almost 10 years the federal agency auditors combed through the financial records of Cambridge, New York painter Susan Crile, regularly disallowing her claimed deductions on her tax returns for art-related expenses on the basis that her work as an artist was “an activity not engaged in for profit.”
This past October, the siege finally ended with a 53-page ruling in her favor by the U.S. Tax Court, which stated that “[i]n a qualitative as well as a quantitative sense, we conclude that the balance of factors favors [Crile] and that she has met her burden of proving that in carrying on her activity as an artist, she had an actual and honest objective of making a profit. We therefore hold that she was…in the ‘trade or business’ of being an artist.”
Her credentials as an artist undoubtedly would pass muster with the Census Bureau or with a grant-making foundation or agency, and in fact she received fellowships from the National Endowment for the Arts in 1982 and 1989. The Metropolitan Museum of Art purchased two of her paintings, as did the Hirshhorn Museum and Sculpture Garden and the Phillips Collection, and more than two dozen other museums (including the Albright-Knox Art Gallery, Brooklyn Museum of Art, Carnegie Institute Museum of Art, Cleveland Museum of Art, Denver Art Museum and the Guggenheim Museum) have her works in their permanent collection. Most of her works in these public collections were donated by collectors.
For most artists, their careers may seem brighter on their resumes than reflected in gallery and auction house sales, and the same has been true with Susan Crile. The Tax Court ruling noted that during the years 2004-2009 her net proceeds from sales of her art amounted to $15,740, and she sold an additional 13 pieces for which she should have received $17,250 but had not been paid. During 2000-2013, Crile earned average annual net proceeds of $9,980 from her art. From the beginning of her career through 2013, she averaged approximately $17,000 from sales of her art.
She would be a pretty hungry artist if that was the entirety of her earnings, but she also is a full-time art professor at Hunter College in New York City (earning between $85,999 and $106,058 during the years in question, not counting interest income, dividends, capital gains and social security payments), which the IRS auditor held against her, claiming that teaching was her real job and making and selling art just a hobby.
However, the Tax Court found “that Hunter College required or expected its art professors to exhibit their work; it did not require that they actually sell art. Many of the marketing and related business activities in which [Crile] engaged were thus irrelevant to her teaching career.”
Crile’s case was not the first time that the Tax Court had ruled in favor of an artist in an area of law referred to as “hobby-loss.” Back in 1977, a precedent-setting decision was handed down with regard to a painter, Gloria Churchman, who had claimed losses of several hundred dollars in her tax filings in 1970 and 1971. For all of her 20-year career, Churchman’s income from art sales never had exceeded her losses, and the IRS also claimed that the artist was supported by her husband, a college professor. As a result, IRS auditors labeled Churchman a hobbyist and her deductions for art-related expenses were denied. However, the artist took her case to Tax Court, which found that Churchman pursued her art career “with a bona fide intention and expectation of making a profit” and the fact that she did not rely on sales of her artwork for her livelihood was irrelevant. Lack of income, the Court ruled, and “a history of losses is less persuasive in the art field than it might be in other fields because the archetypal ‘struggling artist’ must first achieve public acclaim before her serious work will command a price sufficient to provide her with a profit.”
The ruling in favor of Susan Crile was “not a revolutionary decision, but a reassuring one,” according to Amelia Brankov, an arts lawyer in New York City. She noted that “this case is reassuring to artists with regard to Crile having a job and being an artist,” adding that what turned the Tax Court in the artist’s favor was the fact that Crile had “saved receipts for her art-related purchases, had a business plan, marketed her work. It all supported the idea that she was attempting to earn a profit from her work.”
Crile’s tussle with the IRS is not ended. While the Tax Court accepted the artist’s intentions of earning a profit and commended the fact that she saved receipts, the court questioned some of her claimed business expenses, such as cable television bills, gratuities to doormen in her apartment building, taxicabs to the opera and other social events, restaurant meals with friends and international travel. Decisions on those deductions await another day.
While the Census Bureau and many foundations have a broad definition of professional artist, the Internal Revenue Service’s perspective is more narrow. There are nine criteria that the IRS applies in order to separate professionals from hobbyists (professionals may deduct their expenses, hobbyists may not):
- Is the activity carried on in a businesslike manner?
- Does the artist intend to make the artistic activity profitable?
- Does the individual depend in full or in part from income generated by the artistic work?
- Are business losses to be expected, or are they due to circumstances beyond the artist’s control?
- Are business plans changed to improve profitability?
- Does the artist have the knowledge to make the activity profitable?
- Has the artist been successful in previous professional activities?
- Does the activity generate a profit in some years and, if so, how much of one?
- Will the artist make a profit in the future?
The artist need not answer “yes” to every question in order to legitimately deduct business-related expenses – including art supplies and equipment, studio rental, travel (mileage, airfare, parking, tolls, meals and lodging), educational expenses (conferences, master classes, museum membership) and the cost of advertising and promotion (business cards, brochures, photography, postage and shipping) – but the IRS demands proof that an artist make a genuine effort to earn a profit in three years out of a five-year span.
Artistic credentials, which don’t usually matter to collectors, critics, dealers and curators, may help an artist make a case that he or she is a professional for tax purposes. These include earning a bachelor’s or Master’s degree in fine arts, membership in an artists’ society, the experience of teaching art, inclusion in Who’s Who in American Art or some similar directory and an exhibition history.
“No one told me or my lawyers what problem the IRS had with me,” Crile said. “I think they wanted to test the idea of whether someone claiming to be a professional artist is actually a hobbyist, and I was there.” She added that the “only positive thing to come out of this is that the ruling is clear and precedent-setting. It may help an awful lot of people.”
By Daniel Grant