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 IRS has yet to confirm that a donation to a SMLLC the sole member of which is a Section 501(c)(3) organization is deductible under Section 170 of the Code, however, this Information Letter may be a step towards this long-awaited confirmation of which experts generally agree should be the result.