Open Forum

Congrats on your 501(c)(s)!

To me this sounds like a donation with a stipulation attached rather than a free and clear donation.  I.e. This person is attaching a clause to their donation:  "I receive a percentage of the auction proceeds."  The Philly Sports Hall of Fame tends to avoid unencumbered donations.  We continually receive donated items but are clear that there are no stipulations and the the Hall of Fame is free and clear to handle the item(s) as we deem best for the organization and our mission

However as a new museum this may be a nice source of much-needed revenue for you.  If you want to pursue it you should have your legal team ensure the paperwork contains the proper wording. Key items to consider are to clearly define what percentage the donor receives and what happens to any item(s) that do not sell at auction (i.e. does your museum retain ownership.

One other consideration is the value of the items themselves.  Are they more valuable to your museum and it's mission than the potential dollar amount the may bring at auction?  If so perhaps to donor would donate them free & clear and be able to benefit from the tax deduction.

Good luck!

-Ken, Philadelphia Sports Hall of Fame

Hi Barry. As a nonprofit you can do that. As a museum, you cannot. 

As a museum, this action would represent the appearance of multiple conflicts of interest.  

1. It is unethical to both preserve the history that is the focus of your organization and ALSO sell it for profit. The best way to do this would be to consider that donation as a potential acquisition for the collection, ensure that it is does not meet the acquisition criteria as set out in your Collection Management Policy (is inappropriate or duplicative), reject the items for the collection, then sell them. Do not accession, then deaccession, then sell - that restricts the proceeds to direct care.
2. If you are going to sell it, it is best to do this with a third-party seller where the opportunity to purchase is open to the public.  
3. Board members and staff are prohibited from acquiring these materials if they are sold, because that also represents a conflict of interest. 

If this person wants to help the organization, they would consign the materials to an auction house and note that the proceeds benefit your museum, then contribute the profit. Cash is always the best contribution! Everything else is a hassle.

If you do not have a collection this is a little bit less of a sticky situation. I'd offer the collector some other options and explain the conflict of interest this situation represents. 

I agree 100% with Erin and she succinctly parsed the options!

Thank you Ken and Erin, Both of your responses are very helpful. To clarify, 1. we do not have a collection (so no need to worry about accessioning and deaccession), 2. if we did the items WOULD be duplicative and we don't need them, 3. the auction would definitely be public, 4. I described it in a way that suggested it was a donation; it's not - they would hire the museum to run an auction for his items and, like an auction house, keep the larger percentage of the funds raised. 5. If we bring in a third-party then we lose the main motivation for us, which is the funds to the museum that would come in for providing this service. 6. Good advice on the Board - that can be easily arranged, 

With those additions, does that change any of your advice below?

I agree with the replies, including but not limited to the transparency of a  third party auctioneer, legal input in advance, and advice regarding tax ramifications. A newly gained IRS 501c3 status, with which museums have a privileged position, should not be jeopardized by unclear financial/donor transactions. Another issue is liability. That should be managed by your insurance coverage. In other words, what happens if something in your possession that you don't own is damaged?

Also consider what the visual on this might be in the future. If you don't intend to collect tangible things, it could be fine. If, in the future, you intend to collect, what ways might such a transaction influence future collections donors?

Okay, let me complicate things now. Ready? We are an industrial museum, on the site of an active factory. The museum rents space from the factory and exists as a layer over the factory. In other words, when most of the week the filling machine is used for the business, when it is museum-time the factory elements turns off and the filling machine (for example) turns into an interactive. So what if the business makes a relationship with this private collector, the business runs and advertises the auction, and then the business donates the funds to the museum. Does that alleviate the concerns raised without producing new complications? 

Wow! I love the arc of this narrative!

While it seems like a technical grey area, doing so does not seem to pass a number of ethical tests museums should hold themselves too--both by the AAM and by the field as a whole. While this does not directly involve your own collections, I would still direct you to the AAM's guide page on selling collections as it still would be the most relevant guidance:

https://www.aam-us.org/programs/ethics-standards-and-professional-practices/questions-and-answers-about-selling-objects-from-the-collection/#:~:text=A%20museum%20may%20transfer%20an,direct%20care%20of%20the%20collection.

Yes, it is not your own collections and your museum may not have that direct intention to have a collections (at this point at least, who knows the decisions future generations will make), but the idea of museums is to hold items, knowledge, and experiences for the public trust and to share with the public. It is the failures of instituions to do so and violations of this public trust that has led bodies like the AAM to provide these more specific and restrictive ethical guidlines that, even when upholding, some museums have rightly drawn criticism for their actions. These are also the reasons museums are unable to ethically act as appraisers (also legally--it's prohibited by the IRS) which most often leads institutions to insure collections as a whole instead of indivudally ensuring pieces (things can get technically weird at times with traveling institutions and with loaned items, but in general that is the case). 

Museums and selling artifacts should always retain a degree of actual separaration--even when it is not their own collections. Offering a veil of separation by having a for profit entity you are closely related to do the sale to get the same result but keep the museum's name off of it feels like it might avoid some of the legal restrictions and maybe skirt some of the ethical guidlines, but I would suggest that these technicalities are not a good enough shield for the ethical obligations the field should hold itself to. Ethical guidlines are a foundation we build better practice from; they are the minimum, and we should always strive to do more.