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The Internal Revenue Service has provided guidance on the appropriate tax treatment of charitable contributions made to a domestic single-member limited liability company (“SMLLC”) that is wholly owned or controlled by a U.S. charity. In IRS Notice 2012-52, the Service addressed the issue as to whether a donation made to a SMLLC of a U.S. charity was deductible by the donor as a charitable contribution under the Internal Revenue Code.

For federal tax purposes, a SMLLC is disregarded as a separate entity from its owner (in this case, the U.S. charity). The SMLLC’s activities are treated as those of its owner. The U.S. charity is required to report the activities and books and records of its SMLLC as its own for tax and information reporting purposes even though the SMLLC may be treated as a separate entity for legal, employment and certain excise tax purposes.

The Service has determined that if the charitable contribution requirements as set forth in Section 170(a) and (c) of the Internal Revenue Code are satisfied, the contribution is deductible by the donor. The charitable organization, as opposed to the SMLLC, is responsible for the substantiation and disclosure requirements in connection with the charitable contribution. Note, however, that the Service encourages the charitable organization in the acknowledgement or other statement to provide that the SMLLC is wholly-owned by the U.S. charity and treated by the U.S. charity as though the gift were made to the U.S. charity. This guidance applies to charitable contributions made after July 31, 2012.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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