Archival Gray: Elon Musk could buy out your museum
Nonprofit and tax law don’t matter if no one wants to enforce them
Welcome back to The Gray Market! In my effort to avoid my fingers becoming fused to my keyboard like objects ensnared by tree roots after being left too near them for too long, I’m taking a li’l vacation this week. Rather than completely disappearing from your inbox, though, I’m recirculating a post from February that’s gained new relevance based on recent events—namely, the Trump admin’s listing of specific artworks, exhibitions, and texts it wants removed from museums in the Smithsonian network because of woke, as well as its threat to extend the crackdown to art institutions nationwide.
Although I framed the original post around Elon Musk during his brief stints as the head of DOGE and MAGA’s favorite chainsaw-wielding immigrant, the core issue is even more salient today than it was six months ago: What exactly are the limits on what the White House and its richest allies could do to museums if they really want to? The answer from my reporting is that, as with so much else in Trump 2.0, there aren’t any limits, at least if certain key stakeholders co-sign their removal. All it takes to recognize as much is a willingness to acknowledge how many guardrails have been ripped out already.
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Elon Musk at a meeting in Austin, Texas in 2021. Cropped from an original photo by Cléverson Oliveira/MCom/Ministério Das Comunicações, courtesy of Wikimedia via Creative Commons License
Was Joe “I’ll beat him again” Biden right when he lamented in his presidential farewell address that the US is verging on oligarchy? Either way, what would it take to prove we’d crossed the threshold? One undeniable signal would be if wealthy private citizens were allowed to start acquiring what were once public goods—like, say, entire museum collections. Given the events of the past month, I’m afraid we’re already closer to that outcome than you might think.
Believe it or not, my reasoning begins with OpenAI. You may have heard that Elon Musk, the wealthiest weekly ketamine user on Earth, bid $97.4bn for a controlling stake in the developer of ChatGPT on February 10. The move matters to the art and culture sectors because OpenAI is still functionally a nonprofit, just as it was when Musk co-founded the company with its current CEO, Sam Altman, and others in 2015. (Musk was drummed out three years later.) If Elon can make a play for a controlling stake in one particular nonprofit, it raises the prospect that he or another billionaire could do the same for other nonprofits, too.
Since responsibly sorting through this mess requires serious legal expertise, I reached out to Brian Galle, a professor at Georgetown Law specializing in nonprofit organizations, taxation, behavioral law, and economics. Our conversation left me with two main takeaways: first, that there is no way our New Gilded Age plutocrats should be able to buy out the assets of a US museum; and second, that it is nevertheless possible based on the trajectory we’ve been traveling since Donald Trump’s second inauguration.
Structural mismatch
Musk’s bid for OpenAI qualifies as what Wall Street would call a hostile takeover attempt: an offer for a controlling stake in a company made by an outside investor even though the company’s current management has no interest in selling. Although the exact mechanics vary somewhat, in all cases the would-be conqueror’s underlying gambit is to make an offer too good for the target’s existing owners or shareholders to refuse.
One major hiccup with Musk’s OpenAI bid, however, is that the structure of nonprofits makes them all but siege-proof. “A nonprofit is an organization that at its founding voluntarily agreed under state law that it would not distribute profits to anybody, and that, most of the time, doesn’t have any owners,” Galle says.1 “So you can’t have a hostile takeover of an entity that doesn’t have owners, and that doesn’t have shares to buy.”
This structural aspect means that a nonprofit is typically controlled by its board members. They maintain the right to rebuff any unwanted offers to buy the underlying charitable organization, just as OpenAI’s board unanimously rejected Musk’s bid. Even if the board did want to sell—or, alternatively, to convert the nonprofit into a for-profit entity, as OpenAI intends to do—Galle says there are “both federal-law and state-tax-law complications to doing that.”
But these obstacles can be navigated. I’m going to focus on the ones that emerge on the path to willingly selling a nonprofit, because it’s a simpler (and thus, more plausible) route to oligarchic control of a public museum than a for-profit conversion.
The long shadow of the penalty tax
The first complication to purchasing a nonprofit is this: “Under state law, people who work for the board of a charity have a fiduciary obligation to preserve the charitable purposes of the organization,” Galle says. Meaning, the board can’t accept an offer to acquire the nonprofit it runs just because the check would have an obscene number of zeros and commas on it. The payment would also have to come with legally binding assurances in the sale agreement that the new owner would respect and advance the nonprofit’s original charitable aims.2
On top of this, there are higher-level, more punitive restrictions on what can be done with the proceeds of a sale. “Under federal law, the money has to stay committed to a charitable purpose,” Galle says. If it doesn’t, the nonprofit entity (which often becomes an untouchable subsidiary of the new buyer) is in line for a brutal retroactive penalty from the IRS.
Anytime a charitable organization receives a donation, it can apply for a matching grant from the federal government, potentially doubling the benefit it receives. But if the organization ever stops operating as a nonprofit—by, say, transferring the cash from its sale into for-profit purposes—it has “an obligation to repay all the subsidies that that organization has ever gotten in its entire lifetime,” Galle says. That, as my dad would say, is a ‘Yikes!’3 The scarily high cost of making this move is one of the main reasons it barely ever happens.
What if a nonprofit decides to shut down its charitable mission after selling its eligible assets to a for-profit company? “Under state law, the board is typically going to be constrained to give [the proceeds] to the next closest possible use for the money,” Galle says. In other words, if a nonprofit hospital sells to a for-profit entity—the most common niche where these transactions happen, he adds—the nonprofit entity could probably only transfer the sale proceeds to another nonprofit hospital.
If you think these same restrictions would apply in the hypothetical case of a museum being sold, though, you would only be half-right.
Law and disorder
Say a Musk-like figure wanted to strip-mine a museum for its collection. It turns out that he wouldn’t even need to convince the institution’s board to go through the trouble of executing a complex nonprofit sale agreement. Why? Because it’s even easier for them to just deaccession all the works this billionaire might want—and deaccessioning, if taken to an extreme of self-interest and graft, is all that’s needed to get to an oligarchic outcome.
Although museums typically can’t hock the pieces they’ve accepted as gifts under state law, the rest of their assets could legally go on the market in most states as long as an institution’s director, board of trustees, and (in some cases) collections committee sign off on the sale.4 This means it would be possible from a regulatory standpoint for a museum to liquidate much of its collection in one transaction.
Still, this situation rarely happens, for two reasons. First and foremost, a museum with almost no collection has almost no reason for being, and thus no way to sustain itself as a nonprofit after a fire sale. Staging one would make zero strategic sense unless the museum was already in a budgetary death spiral. We’ve already discussed the second reason: the penalty-tax hammer casting a shadow over any attempt to shuttle nonprofit cash to for-profit ends.
What would happen if the crassest, most shameless museum board imaginable stomped all over these rules? Well, the IRS should come after them for violating federal tax law, and the state attorney general should do the same for their transgression of state law. But “should” is doing a lot of work in this scenario, according to Galle.
“In most states, if the attorney general doesn’t do anything, then the board kind of gets away with it. That’s unusual for larger, more important organizations, but it can happen for small ones,” he says.5 Flirting with federal tax-law violations hasn’t always brought the hammer down lately, either. Just look at OpenAI. Altman’s focus on commercializing the company’s products seems to have been the main reason its previous board ousted him from the C-suite in November 2023. His exile lasted less than a week, until the threat of a mass walkout by OpenAI’s staff helped reinstall Altman and clear out his boardroom opponents (with the tacit approval of the company’s biggest backer, Microsoft).
Galle says the near-wholesale transformation of OpenAI’s board “probably shouldn’t have happened with an IRS that was alive, awake, and alert.” But he also adds: “In fairness, I’m sure that the commissioner thought about this, and there are plenty of good political reasons if you’re the IRS not to have much of a priority for nonprofit enforcement.” And that, folks, is the skeleton key to a kleptocratic hellscape.
How to buy out a museum
Enforcement is what makes laws matter. If people know that no higher authority will chase them down for doing nonprofit or tax crime, then from a practical standpoint it isn’t really crime at all. American life becomes The Purge for white-collar reprobates.
Increasingly, this is the way things work in the US now. To recap a few prominent examples, last summer the Supreme Court ruled that Trump enjoys “broad immunity for official acts, placing presidents above the law,” as the American Civil Liberties Union put it. TikTok continues to exist in the US partly because Trump immediately directed his Department of Justice not to enforce the law Congress and Biden used to ban the app. Our sitting president also recently instructed the DOJ to cool out on monitoring the Foreign Corrupt Practices Act, a federal statute that exists to prevent US companies from bribing foreign officials.
On a state and municipal level, it was only a week ago that Trump’s justice department ordered prosecutors in the Southern District of New York to drop all charges against Eric Adams, the city’s cartoonishly corrupt mayor, so that Adams could help execute the administration’s crackdown on migrants. Musk and his team of maladjusted twentysomethings at the Department of Government Efficiency have spent the past month doing all kinds of things that, at the very least, fall into a legal gray zone, and more probably break the law outright. This includes Musk’s clawing back $80m that Congress appropriated for disaster relief in New York—a move so brazen that Adams, now universally acknowledged as a bumbling MAGA sock puppet, is suing to get the money returned after the city’s comptroller threatened to file the suit himself otherwise.
With this larger context in mind, let’s return to the original premise. Suppose Elon Musk wanted to buy a US museum collection. For conversation’s sake, we’ll say he became obsessed with the print collection in a hypothetical institution called the Erie Valley Institute for Lithography (EVIL). Could he buy out its holdings?
We’ve already established that Elon couldn’t make a hostile takeover bid for the institute, because its trustees would maintain the power to reject any offer they didn’t like. But suppose the EVIL board was extremely greedy, and that Musk offered to acquire all of the museum’s artwork for a crazy-high price—one that the trustees could divvy up among themselves if they had certain regulatory assurances from on high. What then?
Well, the simplest portal to a deal would be for the EVIL board to simply agree to deaccession every piece of the collection that Musk wanted. The museum’s director would be powerless to stop the transaction, because the EVIL trustees could just replace them (and the collections committee, if needed) with anyone willing to rubber-stamp the deal. Trump could order the IRS not to impose any penalty tax once the charity breached federal law by distributing the proceeds from the sell-off into the bank accounts of the EVIL board. At that point, the only obstacle would be the state attorney general, who would be responsible for punishing the EVIL trustees for deaccessioning any gifted works and pocketing the money that should have stayed in the charitable realm.
Although there’s no obvious way for Trump to remove a state attorney general actually committed to enforcing these laws, the looming peril of losing a re-election race might be enough to pressure such an official into submission. The attorney general would be especially vulnerable if they were already a Republican, since Trump and his party functionaries could threaten to back a rival in a primary election. Even if the attorney general were a Democrat, though, would they risk their career to stand in the way of Musk’s interest in EVIL?
Personally, I wouldn’t bet on it. Elon Musk could buy out your museum. All it would take are conditions that get more plausible every day. So if your best argument against an oligarchic takeover of art institutions or other public goods is that it “would be illegal” or “the courts would stop it” or “just wait ‘til John Oliver DESTROYS them in his next monologue,” it’s time to look closer at where we already are—and how fast we’re hurtling toward somewhere even griftier.
Galle notes that there is a sub-class of nonprofits that do have shareholders, but it’s mostly made up of condo-ownership groups. Even in these exceptional cases, the nonprofit board would still have to agree to sell the shares to an outsider, meaning they theoretically have real power to bat away a takeover attempt.
OpenAI used this rationale in its rejection letter to Musk, writing that his bid was “not in the best interests of OAI’s mission” to develop artificial intelligence for the good of “all of humanity.”
If a nonprofit willingly converts itself into a for-profit entity, the transition would trigger this same penalty tax. Double ‘Yikes!’
Museums also need to comply with certain transparency and ethical guidelines to stay in good standing with certain US professional associations, like the Association of Art Museum Directors (AAMD) and the Alliance of American Museums (AAM). But these entities also have no meaningful enforcement powers beyond imposing sanctions within the closed ranks of their membership. In other words, the AAMD can’t fine anyone, put them in jail, or do anything else with any impact in the wider world. So if a museum board doesn’t care about staying in good standing with them, they can’t do anything to stop the board from absolutely wilding out.
Galle’s “in most states” caveat stems from the fact that there are a few, including California, that empower donors to sue to try to stop any transactions that may violate a nonprofit’s charter.
