Earlier this month, in Notice 2012-52, the IRS clarified its position on charitable contributions by individuals and corporate contributors to domestic disregarded entities. The Notice provides guidance on the deductibility of contributions to domestic, single-member limited liability companies (“SMLLCs”) that are wholly owned by a U.S. charity, and are disregarded as separate entities for federal tax purposes. The Notice does not address the deductibility of contributions to foreign SMLLCs.
This guidance is a favorable clarification for U.S. charities that are receiving real property or other assets as charitable contributions, and would prefer to hold these assets in separate disregarded entities. Assets donated to domestic SMLLCs that are owned by a U.S. charity are treated as though they were donated to the U.S. charity and are deductible as though the donation were made directly to the charity. The U.S.charity is the donee organization for purposes of required IRS substantiation and disclosure statutes.
In its Notice, the IRS recommends that, to avoid unnecessary inquiries by the IRS, charities disclose that the SMLLC is wholly owned by the charity and treated as a disregarded entity. Michael Cooney, a partner at Nixon Peabody’s Washington, D.C. office, further recommends that “…the use of a special gift receipt should be considered, for the benefit of both the donor and the charity.” Mr. Cooney recently wrote an informative article that provides a thorough list of considerations when contemplating the use of SMLLCs by charities. His article is available here.
Though the IRS Notice is effective 7/31/2012, it is retroactive for taxable years for which the statute of limitations on refund or credit has not expired.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.