More arts groups becoming not-for-profit entities to encourage donations

Key Concepts:

• Not-for-profit organizations
• Institutions of Public Character (IPC)
• Tax benefits for donors (250% tax deduction)
• Transparency and governance
• National Arts Council (NAC)
• Sustain the Arts Fund
• Cultural Matching Fund (CMF)
• Diversified revenue streams
• Peer learning and communities

The Rise of Arts Groups as IPCs

More arts groups are transitioning to not-for-profit organizations, specifically Institutions of Public Character (IPCs). This trend has seen a 17% increase since before the pandemic (2023). The primary driver is the tax benefits offered to donors, incentivizing increased donations.

Benefits of IPC Status

• Increased Donations: IPC status allows donors to receive a 250% tax deduction, making donations more appealing. One arts group saw a 50% increase in support after obtaining IPC status in 2022. The Paper Monkey Theater experienced a 200% jump in donations, from approximately $6,000 to $16,000-$18,000 annually, after becoming an IPC.
• Expanded Programs: Increased funding enables arts groups to expand their education and outreach initiatives, both locally and abroad.
• Enhanced Transparency and Governance: IPC status signals a commitment to transparency and good governance, reassuring stakeholders.
• Cultural Matching Fund (CMF) Access: Arts IPCs can apply for the CMF, which provides a dollar-for-dollar boost to received donations. Since 2014, over $400 million has been dispersed through the CMF.

Challenges and Costs of Obtaining IPC Status

• Compliance Costs: Meeting IPC requirements can be expensive. One puppet theater company spent around $20,000 on accountant and lawyer fees to meet the requirements.
• Sustainability: Even with increased donations and CMF support, some organizations struggle to cover costs. The Paper Monkey Theater's costs can be five times its total donations, primarily due to maintenance and professional fees.

Strategies for Financial Sustainability

• Diversified Revenue Streams: Visual arts IPCs are turning to commercial projects to generate income. This includes hiring artists for murals, workshops, and brand activations. This approach helps artists professionalize themselves by learning about IP, contracts, and negotiation.
• Peer Learning and Communities: The need for peer learning and communities among arts groups to share best practices about being a charity and an IPC is emphasized.

National Arts Council (NAC) Support

• The NAC encourages arts groups to apply for IPC status.
• The Sustain the Arts Fund can cover the costs associated with obtaining IPC status.

Conclusion

The trend of arts groups becoming IPCs is driven by the financial benefits of increased donations and access to the Cultural Matching Fund. While obtaining and maintaining IPC status presents challenges, including compliance costs and sustainability concerns, diversified revenue streams and peer learning are emerging as key strategies for long-term success. The NAC plays a crucial role in supporting arts groups through the application process and providing financial assistance.