Dec 19

Written by: Casey S. Hale
12/19/2012 11:43 AM  RssIcon

The Service's publication earlier this year of Notice 2012-52 is a game changer for fiscal sponsorship. In that notice, the Service announces that going forward a donor may receive a charitable tax deduction for gifts to a domestic single-member limited liability company ("LLC") if the LLC is wholly owned by a 501(c)(3) organization. The Service will treat gifts to the single-member LLC just like a gift to the parent 501(c)(3) organization.

This is a great thing for 501(c)(3) organizations that engage in fiscal sponsorship and that house fiscally sponsored projects in wholly-owned single-member LLCs. Now donors that wish to support those fiscally-sponsored projects can make tax-deductible gifts directly to the project LLC. Whereas before, any tax-deductible gifts ultimately destined for a fiscally-sponsored LLC had to be channeled through the 501(c)(3) sponsor. This sometimes caused confusion for donors since the fiscally sponsored LLC could not raise funds for itself. Instead the staff of the fiscally-sponsored project had to raise funds for sponsoring 501(c)(3) to be directed to the fiscally-sponsored project. Now a fiscally-sponsored single-member LLC can solicit and receive gifts directly.

Additionally, the notice provides that to claim a tax-deduction for a donation to a single-member LLC, the taxpayer must substantiate the donation with contemporaneous written acknowledgement from the donee LLC. In other words, the single-member LLC should issue charitable contribution receipts to its donors, not the parent 501(c)(3) organization. Also, to avoid unnecessary inquiries by the Service, the Service encourages single-member LLCs to disclose, in the contribution receipt or in another statement, the identity of the parent 501(c)(3) organization, that it is wholly owned by the parent 501(c)(3) organization, and that it is treated by the parent 501(c)(3) organization as a disregarded entity for tax purposes.

The notice is definitely a game changer for single-member LLCs that are fiscally sponsored by a 501(c)(3) organization. Those LLCs can now solicit direct donations and can issue charitable contribution acknowledgements directly to those who donate.

Categories: Tax Policy
Location: Blogs Parent Separator Casey S. Hale