Tuesday, June 20, 2017
Cassady V. (Cass) Brewer (Georgia State), Lisa A. Runquist (Lisa A. Runquist, Attorney at Law), and Elizabeth Carrott Minnigh (Buchanan Ingersoll & Rooney) have published Nonprofit LLCs in the ABA's Business Law Today (March 2017). Here is the introduction:
LLCs increasingly intersect with the nonprofit sector. LLCs are used within the sector as tax-exempt subsidiaries (see, e.g., IRS Announcement 99-102 (requiring I.R.C. section 501(c)(3) organizations to report the activities of their single-member LLCs (SMLLCs) on the organization’s annual IRS Form 990)); as vehicles for charitable giving (see e.g., IRS Notice 2012-52 (allowing contributions to an SMLLC owned by a (c)(3) to qualify for a charitable contribution deduction under I.R.C. section 170); see also Priv. Ltr. Rul. 200150027 (Dec. 14, 2001) (disregarded SMLLC established by (c)(3) to receive contribution of real property subject to potential environmental liabilities)); as private foundation substitutes; and as stand-alone, tax-exempt entities in lieu of nonprofit corporations or unincorporated nonprofit associations (see Reg. § 301.7701-3(c)(1)(v)(A) (submission of application for (c)(3) status constitutes an election to be treated as a corporation for federal income tax purposes)). A few states even have a nonprofit form of the LLC (see Ky. Rev. Stat. Ann. §§ 275.520–540 (2017); Minn. Stat. § 322B.975 (2017); N.D. Cent. Code §§ 10-36-01 to -09 (2017); Tenn. Code Ann. § 48-101-809 (2017)).
Furthermore, because it is so flexible, the LLC has proven useful for hybrid for-profit/nonprofit endeavors (i.e., the benefit LLC and the L3C) (see generally Cassady V. Brewer, Elizabeth Carrott Minnigh & Robert A. Wexler, Social Enterprise by Non-Profits and Hybrid Organizations, 489 Tax. Mgmt. at A-33) and joint ventures between tax-exempt and nontax-exempt entities (see, e.g., Rev. Rul. 2004-51 (attributing “insubstantial” activities of an ancillary LLC joint venture to an exempt member); Rev. Rul. 98-15 (attributing “substantial” activities of a whole hospital LLC joint venture to an exempt member)).
Using a hypothetical to illustrate, this article summarily explores the use of LLCs within the nonprofit sector, including a few words about their use as hybrid for-profit/nonprofit enterprises.