IRS Allows Deductions for Charitable Contributions to Disregarded Entities
August 8, 2012
Notice 2012-52 provides long-awaited clarification that contributions made to a domestic, single-member, limited liability company (SMLLC) that is wholly owned by a section 501(c)(3) organization and disregarded for federal tax purposes will be eligible for the charitable deduction.
Colleges and universities may hold real estate, for example, in the form of a SMLLC owned by the institution. The notice clarifies that donors gifting real property to the SMLLC may take a charitable contribution for the donation. In that case, while the gift is made to the SMLLC, Notice 2012-52 makes it clear that the institution is responsible for meeting the substantiation and disclosure requirements applicable to the gift.
The notice also suggests that charities disclose, in a gift acknowledgement or other statement to donors, that the SMLLC is wholly owned by the institution or other charity and is disregarded for federal income tax purposes. Annual percentage limitations on charitable contribution deductions apply to donor gifts to a SMLLC, just as if the gifts were made to the institution.
Institutions should keep in mind that state laws may depart from federal tax rules. A SMLLC disregarded for federal tax purposes may be "regarded" under state tax laws.
The effective date of Notice 2012-52 is July 31, 2012, but taxpayers may rely on the notice prior to this date for earlier tax years if the statute of limitations has not expired.
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