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IRS Rules That Donations To Single Member LLCs Wholly-Owned By Charities Are Deductible

The IRS has issued a new notice which offers guidance regarding the deductibility of contributions made to a single member LLC that is wholly-owned by a charitable organization.  Notice 2012-52 states that the IRS will now treat contributions to a single member LLC that is disregarded for income tax purposes as contributions to a branch or division of the charitable organization.  Thus, if contributions to the charitable organization itself are deductible on the donor’s federal income taxes, contributions to a single member LLC owned by the charitable organization will also be deductible.

A disregarded entity is considered the same as its owner for tax purposes and the income and expenses of the disregarded entity appear on the owner’s income tax return.  The disregarded entity is still considered to be completely separate from its owner for liability purposes.  By default, a single-member LLC is disregarded unless it elects to be treated as a corporation on Form 8832 (the well-known “check the box” form).  For the purpose of obtaining a charitable deduction, the LLC must be organized under U.S. law and must not have elected to be taxed as a corporation.  The charitable organization should also indicate in its acknowledgment of the donation that the contribution was made to a single member LLC wholly owned by the charitable entity and that the single member LLC is treated as disregarded.

Notice 2012-52 is effective for contributions made on or after July 31, 2012.  However, taxpayers may also rely on the notice for contributions made prior to July 31, 2012, if the limitations period for refund or credit is still open.  Thus, taxpayers who previously made a contribution to a single member LLC wholly-owned by a charitable organization but did not deduct the contribution on their income taxes should investigate the possibility of obtaining a refund so that they may claim their deduction.

If you have questions about your contributions to a charitable entity, or are interested in starting your own charity, contact a Florida tax attorney who can assist you today.