May 4, 2010; Source: New York Times | A New York City museum devoted to featuring sexual pursuits and pleasures is raising eyebrows—and not because of what’s being shown. Rather, some are concerned that items on display at the for-profit museum were donated to its nonprofit affiliate, the Muse Foundation, in return for a tax deduction.

Noting that there is nothing unusual about operating a for-profit museum, The New York Times says that the relationship between the Museum of Sex and the tax-exempt foundation is “far from typical.” Tax rules permit private companies to have dealings with affiliated nonprofit organizations, but the tax-exempt entity is supposed to operate for the benefit of the public, not for a for-profit organization.

Although declining to comment on the relationship between the museum and foundation, Bruce I. Friedland, a spokesman for the Internal Revenue Service, said, “Where concerns occur, the issue is whether the tax-exempt organization is operating for the substantial private benefit of the for-profit entity.” The Times reports that when people contact the museum about making a donation, they are directed to the foundation, which is located in the same building as the museum. Some of the items donated are then lent to the museum for display.

To at least one expert, this arrangement is out of the ordinary. “It’s unusual to say, ‘If you want to donate to my for-profit corporation, then donate to this tax-exempt organization,’ ” said James Reilly, a partner with Condon O’Meara McGinty & Donnelly LLP. Daniel Gluck, the museum’s director, defends the relationship between the two institutions. “The Muse Foundation is completely its own separate entity,” he said. “We can’t take money from the foundation and we don’t plan to. We aim to build it up into a foundation whose interests are aligned with the museum.”

The foundation describes its mission: “to preserve and make available a comprehensive collection of materials relating to the history, evolution and cultural significance of human sexuality.” Gluck also says the foundation intends to support research and make grants. But as the Times notes “it has yet to begin those efforts because it lacks resources.” According to 2008 tax filings, the foundation had zero income and $3,956 in expenses. Apparently being in the sex business isn’t profitable for everyone.—Bruce Trachtenberg