CHARITABLE CONTRIBUTIONS TO DOMESTIC DISREGARDED ENTITIES

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By Nancy Kirchner, CPA - Tax Manager

The IRS issued a notice (2012-52) on July 31, 2012 confirming that deductible, charitable contributions can be made to a single member limited liability company (SMLLC) that is wholly owned by a charitable organization and is classified as a disregarded entity for federal income tax purposes. The SMLLC must have been created or organized in or under the law of the United States, a United States possession, a state, or the District of Columbia.

A disregarded entity is a business entity that has a single owner and is disregarded for federal income tax purposes. A domestic charity that wholly owns a disregarded entity must treat the income, expenses and operations of the disregarded entity as its own for tax reporting purposes. Advantages for the disregarded entity are that their income is exempt for federal income tax purposes, there is no need to apply for tax-exempt status, and there is no need to file a separate income tax return.

Fundraising for the disregarded entities will now be easier because donors will be able to contribute directly to the entity rather than making a contribution to the parent organization for the benefit of the disregarded entity. To avoid unnecessary inquires, the IRS is encouraging charities to fully disclose that the disregarded entity is wholly owned by its parent charitable organization.

The notice is effective for charitable contributions made on or after July 31, 2012. However, taxpayers may rely on this notice prior to its effective date for taxable years for which the period of limitation on refund or credit under Code Section 6511 has not expired.

Click here to view Notice 2012-52