Eiduk Tax & WealthInsights

Promoter structures library

Charitable LLC

ANo legitimate version

Sold as: "Charitable LLC", "charitable investment LLC", "give and keep", "tax-free growth with a deduction", "philanthropic wealth structure"

Technical name: Purported Sec. 170 contribution of a non-voting LLC membership interest to a Sec. 501(c)(3), with the donor retaining voting control

If you still control it, manage it, and can buy it back cheap, you did not give it away, and the IRS has now said so using three separate doctrines at once.

Classification A. There is no compliant way to do this as it is marketed.

The pitch

Fund an LLC, donate roughly 90 percent or more of the non-voting units to a charity, often promoter-affiliated. Take a large appraised deduction. Keep managing and using the money. Optionally buy the interest back later at a discount.

Where it breaks

Everything. The donor never parts with dominion and control.

What it costs you if it is wrong

The deduction fails, and on the IRS's own analysis it fails three separate ways at once. Because Sec. 7701(o) applies, the Sec. 6662(b)(6) and (i) 40 percent strict-liability penalty is on the table with no reasonable cause defense. The deduction is also not the only thing lost: under assignment of income the LLC's income remains taxable to you.

Red flags specific to this structure

  • The promoter requires a specific charity
  • The promoter requires a specific appraiser
  • The LLC has no business purpose
  • The charity exercises no control
  • The donor can reacquire below fair market value

Questions to ask the person selling this

Take these into the next meeting. Someone selling the legitimate version answers them without difficulty.

  1. 1Can I choose the charity and the appraiser myself?
  2. 2After the gift, who controls the LLC and who decides on distributions?
  3. 3Is there any side letter, put, or call that lets me reacquire the interest?
  4. 4What is the LLC's business, apart from holding the assets I put into it?
  5. 5Will the charity actually receive distributions, and when?
  6. 6Who signs Form 8283 Section B?

Which of the Seven Markers this trips

  • A promised deduction or savings multiple

  • The promoter selects the appraiser or the actuary

  • The client keeps control of what they supposedly gave away

  • The economics do not work without the tax benefit

  • 'The IRS has never listed this'

Score your own situation against all seven

The legitimate version

Donating a real interest in a closely held business or LLC to a public charity or donor-advised fund is a mainstream and powerful strategy.

What distinguishes it

  • Exclusive legal control actually passes to the charity
  • Qualified appraisal by a qualified appraiser under Sec. 170(f)(11)
  • Form 8283 Section B signed by appraiser and donee
  • No side agreements, no put or call, no retained management fee stripping
  • The charity can and does receive distributions
  • UBTI under Sec. 512 and excess business holdings under Sec. 4943 analyzed
  • Planned BEFORE a binding sale agreement, or the anticipatory assignment of income doctrine applies

What the courts have done

How this has actually gone for the people who bought one.

The case that teaches it

name

FSA 20260401F

holding

The IRS applied THREE independent doctrines: economic substance under Sec. 7701(o), failing both prongs; partnership substance, holding the charity was a partner in name only with no meaningful stake; and assignment of income, holding the donor retained dominion and control so all LLC income remains taxable to the donor. The deduction also failed for lack of donative intent, qualified appraisal, and contemporaneous written acknowledgment.

why it teaches

Because Sec. 7701(o) applies, the Sec. 6662(b)(6)/(i) 40% strict-liability penalty is on the table with no reasonable cause defense.

Reporting status

Not designated. Attacked entirely on general doctrine.

See the full status board

Holding one of these, or being pitched one?

The diagnostic work is worth doing before the return gets filed rather than after. That is a conversation, not an engagement.

Schedule a complimentary consultation

Take this into the meeting: the one-page brief

Statutes, regulations, and rulingsthe authority behind everything above

Authority

statute
  • IRC Sec. 170(f)(3)(A) partial interest rule
  • IRC Sec. 7701(o)
  • IRC Sec. 170(f)(11)
  • IRC Sec. 170(f)(8)
guidance
  • IR-2024-304 (Dec. 4, 2024), the IRS alert specifically warning high-income taxpayers about Charitable LLCs
  • FSA 20260401F (released Feb. 4, 2026)
analogue

Notice 2004-30 lists S corp non-voting stock donated to an exempt organization with retained control. Same disease, older diagnosis.

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