Charitable LLC

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

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

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.

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.

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

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

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

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