August 6, 2012
IRS Gives Green Light for Deductible Contributions to Single-Member Domestic LLCs
For years the IRS has refused to rule on whether contributions to a single-member limited liability company (SMLLC) that is wholly owned and controlled by a U.S. charity and otherwise disregarded for federal income tax purposes are deductible as charitable contributions. The long wait is now over, at least in part. In Notice 2012-52 the Service provides the following:
If all other requirements of § 170 are met, the Internal Revenue Service will treat a contribution to a disregarded SMLLC that was created or organized in or under the law of the United States, a United States possession, a state, or the District of Columbia, and is wholly owned and controlled by a U.S. charity, as a charitable contribution to a branch or division of the U.S. charity.
This is welcome news, as charities often prefer to use SMLLCs for a variety of purposes. For example, if a potential contribution of real property may come with unexpected liabilities, one strategy a charity can use to protect its other assets from that liability is to create a SMLLC solely for the purpose of receiving that contribution and owning that property. Left still uncertain, however, is what happens if the SMLLC is a foreign entity, which could easily be the case for charities that operate internationally. The IRS views regarding that situation are still unknown.
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