n-12-52.pdf

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# Charitable Contributions to Domestic Disregarded Entities

Notice 2012-52

## PURPOSE

This notice provides guidance on the deductibility of contributions to domestic
single-member limited liability companies that are wholly owned and controlled by
organizations described in § 170(c)(2) of the Internal Revenue Code (U.S. charities) and
for federal tax purposes are disregarded as entities separate from their owners under §
301.7701-2(c)(2)(i) of the Procedure and Administration Regulations (SMLLCs).
BACKGROUND

Section 170(a) allows as a deduction any charitable contribution, as
defined in § 170(c). Section 170(c)(2) in part defines the term "charitable
contribution" as a contribution or gift to or for the use of a corporation,
trust, or community chest, fund, or foundation --

(A) Created or organized in the United States or in any possession
thereof, or under the law of the United States, any State, the District of
Columbia, or any possession of the United States;

(B) Organized and operated exclusively for specified purposes,
including religious, charitable, scientific, literary or educational purposes;

(C) No part of the net earnings of which inures to the benefit of any
private shareholder or individual; and

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(D) Which is not disqualified for tax exemption under § 501(c)(3) by
reason of attempting to influence legislation or participating in a political
campaign.

Section 170(b) prescribes limitations on the maximum amount deductible as a
charitable contribution.

Generally, a business entity that has a single owner and is not a corporation
under § 301.7701-2(b) is disregarded for federal tax purposes as an entity separate
from its owner (disregarded entity). See § 301.7701-2(c)(2)(i). Section 301.7701-2(a)
provides that "if the entity is disregarded, its activities are treated in the same manner as
a sole proprietorship, branch, or division of the owner." A business entity (including a
disregarded entity) is domestic if it is created or organized within the United States, or
under the law of the United States or of any state. See § 301.7701-5(a). A U.S. charity
that wholly owns a disregarded entity must treat the operations and finances of the
disregarded entity as its own for tax and information reporting purposes. See Ann. 99-
102, 1999-2 C.B. 545. However, for employment and certain excise tax purposes, an
entity that is disregarded as separate from its owner for any purpose under § 301.7701-
2 is treated as an entity separate from its owner. See § 301.7701-2(c)(2)(iv) and (v).
CONTRIBUTIONS TO DOMESTIC SMLLCs

If all other requirements of § 170 are met, the Internal Revenue Service will treat
a contribution to a disregarded SMLLC that was created or organized in or under the
law of the United States, a United States possession, a state, or the District of
Columbia, and is wholly owned and controlled by a U.S. charity, as a charitable
contribution to a branch or division of the U.S. charity. The U.S. charity is the donee

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organization for purposes of the substantiation and disclosure required by §§ 170(f) and
6115. To avoid unnecessary inquiries by the Service, the charity is encouraged to
disclose, in the acknowledgment or another statement, that the SMLLC is wholly owned
by the U.S. charity and treated by the U.S. charity as a disregarded entity. The
limitations of § 170(b) apply as though the gift were made to the U.S. charity.

EFFECTIVE DATE

This 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 § 6511 has not expired.
DRAFTING INFORMATION

The principal author of this notice is Susan J. Kassell of the Office of the
Associate Chief Counsel (Income Tax & Accounting). For further information
concerning this notice, contact Ms. Kassell at (202) 622-5020 (not a toll-free call).