Bryan Cave Charity Law

Charity Law

Limited Liability Companies

Main Content

IRS Finally Approves Deductibility of Contributions to Domestic LLCs Wholly Owned by Charities

August 2, 2012

Categories

Tax practitioners have long believed that donations could be made to single member LLCs wholly owned by section 501(c)(3) organizations on the theory that, for tax purposes, the donation was treated as made to the charity and not the LLC.  In long awaited guidance, the IRS has finally agreed in Notice 2012-52.  The analysis in the notice is not surprising, and is in fact, exactly what tax practitioners have been arguing ever since disregarded entities came into existence.

Generally, a business entity that has a single owner and that is not a corporation is treated as disregarded as an entity separate from its owner.  These “business entities” are typically limited liability companies. If an entity is disregarded, its operations and activities are treated in the same manner as a sole proprietorship, branch, or division of the owner, and the owner generally reports all income, loss, deductions, and credits on its own tax

LLCs and the Charitable Deduction

LLCs and the Charitable Deduction

February 7, 2012

Authored by: Keith Kehrer

Under the so-called “check the box regulations” a single member limited liability company (“SMLLC”) is disregarded for federal income tax purposes unless it elects to be taxed as a corporation.  Therefore, where a Section 501(c)(3) organization establishes a SMLLC that does not seek Section 501(c)(3) status or otherwise elect to be taxed as a corporation, the SMLLC is treated as a division of the 501(c)(3) organization for federal income tax purposes.   Strangely, the IRS has declined to rule whether a donation to a SMLLC qualifies as a deductible charitable contribution made to or for the use of a Section 501(c)(3) organization for purposes of Section 170.  The New York State Bar Association recently sent a report to the Treasury and the IRS in support of the position that contributions to such SMLLCs should be eligible for the charitable deduction.   I also believe that this is the appropriate treatment for federal income tax purposes and hope

Rare IRS Guidance Regarding Single-Member LLCs

The IRS recently released an Information Letter (2010-0052) regarding the tax treatment of a single-member limited liability company (SMLLC) the sole member of which is a public charity.  The IRS confirmed the well-accepted position that a SMLLC is a “compontent part” of the exempt member which must treat the operations of the SMLLC as a branch or division.  The IRS went on to confirm that the SMLLC “receives the benefit of its owner’s tax-exempt status, including exemption from federal income tax, federal unemployment tax, and other federal taxes where applicable” but noted that a SMLLC is subject to certain federal excise taxes and employment taxes. 

The IRS also confirmed that a grant from a private foundation to a SMLLC the sole member of which is a public charity would be treated as a qualifying distirbution  and not a taxable expenditure, and expenditure responsibility generally will not have to be exercised by the private foundation.  The

The attorneys of Bryan Cave LLP make this site available to you only for the educational purposes of imparting general information and a general understanding of the law. This site does not offer specific legal advice. Your use of this site does not create an attorney-client relationship between you and Bryan Cave LLP or any of its attorneys. Do not use this site as a substitute for specific legal advice from a licensed attorney. Much of the information on this site is based upon preliminary discussions in the absence of definitive advice or policy statements and therefore may change as soon as more definitive advice is available. Please review our full disclaimer.