IRS (Finally) Agrees to LLC Subsidiary Charitable Deduction

Many nonprofit organizations conduct certain operations related to their charitable activities through a separately formed Limited Liability Company (LLC). Under existing US tax law, an LLC that is wholly owned is disregarded for tax purposes and its activities are combined with its owner. Thus, nonprofit organizations utilizing LLC’s assumed that the operations of their LLC entities would qualify as tax exempt and contributions to those LLC’s would be allowed as tax deductible. But clear guidance from the IRS on this issue was not forthcoming until this week when it issued Notice 2012-52 making it clear that donations to charity owned LLC qualify as tax deductible. This guidance is effective as of July 31, 2012; however, taxpayers can rely on this ruling for earlier tax years for which the statute of limitations for refunds or credits hasn’t expired under IRC Section 6511. See IRB 2012-35, 7/31/2012 which will be posted at http://www.irs.gov/irb/