IRS Issues Guidance Permitting Deductions for Gifts Made to a Charity's Subsidiary LLC

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Charities frequently desire to house some of their assets and operations in a subsidiary company for liability protection, management and other beneficial business reasons. The Internal Revenue Service (“IRS”) has issued recent guidance (Notice 2012-52) that makes a limited liability company (“LLC”) the ideal choice of entity for this purpose in many instances. In particular, the guidance resolves any doubt about a charity’s ability to fundraise from individual donors through a wholly owned LLC.

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Many charities create wholly owned LLCs over which they maintain full voting and economic control while at the same time receiving the benefits of a separate legal entity, such as liability protection and distinct management. Unlike corporations, LLCs that are wholly owned are disregarded as an entity separate from their owner for federal income tax purposes. In tax parlance, these LLCs are known as “disregarded entities.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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