Wednesday, September 2, 2009

Kerfuffle Concerning L3Cs

Low Profit Limited Liability Companies, or L3Cs, are being heralded by some as a promising new entity that can create a rational and workable legal scaffolding for hybrid social enterprises.  My forthcoming article, Law and Choice of Entity on the Social Enterprise Frontier, which will appear later this year in the Tulane Law Review, concludes that L3Cs hold significant potential, particularly for social enterprises hoping to capitalize their operations by means of program related investments.  Although  Dana Brakman Reiser did not endorse the L3C concept, she discussed it in her recent Fordham Law Review article, For-Profit Philanthropy.

The Nonprofit Times is reporting a dust-up between L3C promoters and a skeptical IRS official.  The official was quoted as saying that no one in the IRS has yet approved the L3C concept and that there is not yet any basis for believing thatL3Cs will pass IRS muster as vehicles for program related investments.  This gave rise to a rebuke from MarcusOwens, who was one of the drafters of original L3C model legislation and who formerly was the head of the exempt organizations division at the IRS.  Owens apparently wrote a letter saying that it was "not entirely accurate" and "possibly misleading" to maintain that the IRS had not yet ruled on at least some of the tax implications of L3Cs.  Robert Lang, another L3C booster, was quoted as saying that in the IRS "the right hand is not knowing what the left is doing."

The Nonprofit Times article contained other interesting updates onL3Cs, including the fact that five states (plus the Crow Indian Reservation in Montana) have adopted L3C legislation and that several more are considering it.


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