AboutHarvey 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
Question QUESTION: I have interest in an LLC which I would like to donate to a
501(C)3, however this would cause obvious UBIT problems.
could I donate it to a donor advised fund at a community
foundation instead and then when the LLC is liquid, the
proceeds could go to the 501? is there anyway to allow me to
donate LLC interest now, recognize the taxable deduction,
and not have it cause problems for the 501, given they LLC
interest could not be sold for a few years.
ANSWER: First I would need to know if the LLC interest comes with any management responsibility, like a general partner, or would it be, in the alternative, a limited partnership interest (no authority).
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
---------- FOLLOW-UP ----------
QUESTION: Thanks for your very quick response. The LLC interest is
similar to a general partner, with some restrictions, but it
could be stripped of all voting rights (ie made into an assignee) at time of donation if needed. But it would still
be an interest which would receive an income allocation,
which is why I am thinking it would be a UBIT problem.
Answer Passive investments (no active work required by the nonprofit) are not UBIT. See www.irs.gov/pub/irs-pdf/p598.pdf IRS Publication 598 "Tax on Unrelated Business Income of Exempt Organizations"
on page 8, right column
---Start of Excerpt--
Exclusions
The following types of income (and deductions
directly connected with the income) are gener-
ally excluded when figuring unrelated business
taxable income.
Dividends, interest, annuities and other in-
vestment income. All dividends, interest, an-
nuities, payments with respect to securities
loans, income from notional principal contracts,
and other income from an exempt organization’s
ordinary and routine investments that the IRS
determines are substantially similar to these
types of income are excluded in computing un-
related business taxable income.
---End of Excerpt--
I am assuming that the nonprofit would not have any exposure, other than the possible loss of value of the interest.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
