Great News for Nonprofits with LLC Subsidiaries

July 31, 2012 Posted by The Law Firm for Non-Profits, P.C. in Charitable Deductions, Donations, IRS, News

501(c)(3) organizations frequently create single member limited liability companies to hold assets, some as subsidiaries to protect against risk. However, until now, the IRS would not state whether donations to these single member LLCs were deductible as charitable contributions. As of today, that has all changed.

The IRS just released a notice that donations to wholly owned LLC subsidiaries of nonprofits will be treated as charitable contributions to the charity as long as certain conditions are met.

To qualify, the LLC must be: (1) single member, (2) created or organized in the US, (3) wholly owned and controlled by a US charity, and (4) treated as a disregarded entity (meaning that all taxes pass through the LLC to the charity). The US charity is the donee for purposes of providing an acknowledgment to the donor. The IRS encourages the charity to disclose in the acknowledgment that the LLC is wholly owned by the charity and treated by the US charity as a disregarded entity.

This is great news for nonprofits with LLC subsidiaries because donations can now go directly to the LLC without concern for whether it will be treated as a charitable contribution.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits,1812 W Burbank Blvd, #7445, Burbank, CA 91506

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