SUSAN CRILE is a painter and printmaker of considerable renown. Her work — ranging from the political and incensed to the lyrical — has been exhibited internationally and is in the collections of such prominent institutions as the Metropolitan Museum of Art, the Guggenheim Museum and, in Washington, the Hirshhorn Museum and Sculpture Garden.
She is also a Hunter College tenured professor of studio art.
Despite having the kind of success so many artists dream about, Crile has not made a fortune. But she loves her two “jobs” and works them hard. Like many of her colleagues, she views her teaching as her steady employment and her art as her “business.”
But in 2005, the Internal Revenue Service informed Crile that it did not agree. In a trial last November (and in a move decried by many artists), the IRS argued that because the professor’s teaching and her art are interrelated — and that professors in her field are expected to exhibit their work — Crile was not entitled to take deductions for expenses related to her art business.
Instead, the IRS characterized her serious and critically acclaimed art career as “a hobby” and contended that she underpaid her taxes by more than $81,000 from 2004 to 2009.
In 2014, Crile won the first — and perhaps most crucial — part of her case. She got a decision from the United States Tax Court that her work as an artist is a “trade or business” separate from her teaching. The Tax Court noted that she was an artist before she began her teaching career and continues to be one today, even though she was awarded tenure years ago.
Crile is heartened by the win but tired of the long battle. She emphasizes that her victory is not only a major one for artists but also for all employees who have “steady” jobs and separate, independent businesses, even fledgling ones.
(Technically, the case is most relevant for those who claim deductions for a “trade or business” on Schedule C — or form 1040. According to the IRS, individuals should: “Use this schedule to report income or loss from a business you operated or a profession you practiced as a sole proprietor.”)
Crile says she hopes that staff and faculty at CUNY, and nationwide, will take heart from the decision — and learn from it as well.
The Tax Court, which handed down its ruling in October, agreed that Crile’s artistic career constituted a “trade or business” apart from her teaching in that “she had an actual and honest objective of making a profit.” The intent to make a profit from the business is the key inquiry when determining whether Schedule C deductions are allowed.
To determine whether an individual claiming trade or business deductions intends to make a profit, the Tax Court looks at a nine-factor test. The nine factors deal with issues such as whether the taxpayer engages in the effort in a business-like manner, whether they have expertise in the subject matter, and what their financial status is separate from their trade or business. (The full list can be found at the IRS Web site under publications for activities engaged in for profit.)
Under the law, you do not need to meet all nine factors, but it is important to meet a predominance of them. Good records are vital in that respect, since they constitute much of the evidence a court will consider when evaluating profit motive under the nine-factor test. As Crile advised, “Keep records, keep records, keep records.”
Her attorney, Micaela McMurrough of Cravath, Swaine & Moore, reiterates that instruction: “Keep records of who comes to see your work, who you have tried to contact and how you have tried to promote your work. Do you have an inventory of your work? Your correspondence? If, for example, you are someone developing an app, do you have a record of someone who is doing market research? Do you have a record of where the market is for this?”
The second part of Crile’s case — still to be resolved — relates to the specific deductions she took as an artist.
Crile has had a career as an artist for more than 40 years. According to court papers, she earned $667,902 from the sale of 356 works between 1971 and 2013, or an average of less than $16,000 a year. She started teaching at Hunter in a part-time position in 1983 and earned tenure in 1994. Her work has been fueled by contemporary events such as the Persian Gulf War and abuses at Abu Ghraib prison but also by Venetian tile and the walls of Rome. She is currently working on a series of life-size paintings of Guantan-amo prisoners and paintings on the BP oil spill in the Gulf of Mexico.