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About Harvey Mechanic
Expertise
US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. To search my previous answers you can do a Google search:
site:allexperts.com/q/nonprofit
[with your other search terms appended].

Experience
I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.

Education/Credentials
B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude

You are here: Experts > Real Estate > Tax Planning: U.S. > Nonprofit Law > LLC or Corporation for nonprofit?

Nonprofit Law - LLC or Corporation for nonprofit?

Expert: Harvey Mechanic - 10/24/2009

Question
QUESTION: I am planning on establishing a nonprofit and applying for 501(c)(3) status. My funding will initially come from a foreign charitable foundation, until I can gain enough local sponsors and contributors to pay for my expenses. I will be the only person involved in the US, and will be paying myself a salary.

Can I set up a nonprofit LLC with myself as the sole member, or do I need to create a corporation? Will an S-corp be an option, or does it need to be a C-corp?

Thank you.

ANSWER: The IRS grants 501(c)(3) organization exemption status to LLCs
that are properly organized and operated. However, it only would
grant exemption to an LLC whose members are all themselves exempt
organizations.

"Because state laws generally provide LLC members with ownership
rights in the assets of the LLC, the Service is concerned that
allowing non-exempt members would result in potential inurement
problems. Thus, the LLC cannot have private shareholders
or individuals as members, and its organizing documents must
state a purpose to further the members' charitable purposes. It
should be noted, however, that the presence of solely charitable
members does not ensure that the organization will be operated
exclusively for charitable purposes. "
www.irs.gov/pub/irs-tege/eotopicb01.pdf
at pdf page 4 about 1/2 of the way down the page

Therefore, your organization would not be a LLC. Also, after you incorporate, the IRS would not refer to it either as a "S" corporation or "C" corporation as those types have owners (stock). The terminology used is "Nonprofit Corporation", but some states, like New York, refer to it as a "Not-for-profit Corporation". In the alternative, the organization could be a charitable trust.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

---------- FOLLOW-UP ----------

QUESTION: Thank you for the prompt response. Would it be possible to name the foreign charitable foundation as an exempt organization?

Answer
You are welcome.

See
www.irs.gov/irm/part7/ch10s06.html#d0e93499
--start of excerpt ---
  1.

     Foreign organizations that meet the requirements of IRC
501(c)(3) may establish exemption from United States income tax,
or establish their charitable status for purposes of the estate
and gift taxes. However, apart from treaty provisions,
contributions to foreign charities are not deductible under IRC
170(c).
     Note:

     Foreign organizations may, for various reasons, seek
recognition of exemption under IRC 501(c)(3) even if they have no
taxable income in this country. The Service will recognize their
exempt status if they meet the requirements applicable to
domestic organizations.
--end of excerpt ---

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

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