Reacting to museums' complaints of sharp declines in donations of art, a bill recently proposed by Sen. Charles Schumer (D-NY) could revive the practice of so-called fractional gifts by making the process easier and more tax-advantageous, the Wall Street Journal reports.

Prior to passage of the Pension Protection Act of 2006, collectors were allowed to claim a tax deduction when they donated a work of art "incrementally" — that is, donating a certain percentage of rights to the work each year. However, restrictions in the 2006 legislation prevented donors from realizing tax benefits when a donated piece of art appreciated in value and limited the time allotted to complete a fractional donation to ten years. As a result, wealth advisers and estate lawyers soon stopped recommending the practice and such gifts "virtually dried up," said Association of Art Museum Directors president Michael Conforti.

The bill proposed by Schumer would give donors twenty years to complete the donation of a gift and allow them to take a deduction on a portion of any subsequent appreciation in its value. In addition, the bill would require museums to report fractional donations on their yearly tax forms and exhibit the artwork in proportion to its ownership interest over every five-year period, which would keep it from remaining permanently in the donor's private collection during the gifting period. Gifts also would be subject to a binding written contract to protect against challenges by heirs after a donor's death, with donations valued at more than $1 million requiring a review by the IRS's art advisory panel.

Critics of the proposed bill argue that if donated art declines in value, a donor's tax break could shrink. Indeed, the bill comes at a time when prices for art have dropped 30 percent and are on track to return to 2004 levels, according to Mei Moses Art Indexes, which tracks repeat-auction sales.

Sen. Charles Grassley (R-IA), who as chairman of the Senate Finance Committee spearheaded the initial changes in the original Pension Protection Act, said the proposed bill is a compromise. "Some museum officials thought Congress went too far to shut down abuse," he said. "I still think partial donations of art are of questionable value to taxpayers, but museum officials and their champions feel strongly otherwise, so I'm willing to continue to listen."