Using and Abusing Charitable LLCs

By Justin T. Miller¹

Synopsis: Charitable limited liability companies avoid restrictions that apply to traditional tax-exempt charitable organizations, such as public charities and private foundations. While there is no tax benefit for creating a charitable limited liability company, this article examines how such entities may be used (or potentially abused) to generate charitable contribution deductions.

I. INTRODUCTION

An individual can avoid many of the substantial restrictions that otherwise apply to traditional tax-exempt charitable vehicles—such as donor advised funds, private foundations and charitable remainder trusts—by using a for-profit limited liability company for both charitable purposes and non-charitable business purposes (a "Charitable LLC"). Although the Charitable LLC would not be a tax-exempt entity and the individual would not be entitled to a charitable contribution deduction upon funding the Charitable LLC, the individual would be entitled to passthrough deductions if and when the Charitable LLC actually makes a donation to a charitable organization under section 170 of the Internal Revenue Code of 1986, as amended (the "IRC").