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Individual Finds Exempt LLC Guidance Unnecessary

OCT. 22, 2021

Individual Finds Exempt LLC Guidance Unnecessary

DATED OCT. 22, 2021
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Docket: IRS-2020-0042
Standards for Section 501(c)(3) Status of Limited Liability Companies (Notice 2021-56)

Comment On: IRS-2020-0042-0001
Notice 2021-56

Document: IRS-2020-0042-0002
Comment from Bassett, Thomas

Submitter Information

Name: Thomas Bassett

Address:

Clayton, MO, 63105

Email: thomas.bassett@commercebank.com

Phone: 314.746.7335


General Comment

October 22, 2021

I appreciate the opportunity to comment on Notice 2021-56 and the proposals vis-á-vis allowing an LLC to be treated as an exempt organization under IRC Section 501(c)(3).

Given the large diversity of state statutes for LLCs, LLPs, LLLPs and the like, and the general availability of state-law not-for-profit corporations, I do not see the need to introduce the complexity of LLCs and other types of 'creatures' into the world of 501(c)(3). The current system — that no 'stand alone' LLC can be granted 501(c)(3) status, and that only LLCs who are owned by one or more other 501(c)(3) entities may be granted this status, seems to be working equitably and without much difficulty.

I appreciate the desire to be flexible that the Service has shown in the proposals to allow more entity types to qualify, but I don't believe it's necessary in today's environment.

Some commentators may desire to avoid the complexity of a state filing and/or an annual report which some states require for corporate entities. In the case of an organization wishing to be treated as a private foundation, that complexity can already be avoided — by forming a trust to be treated as a private foundation. In those cases, you execute an irrevocable trust document, no state filing is needed, and you apply for tax-exempt status to be an exempt private foundation. Those applications are routinely approved/granted. And most states have in place laws about charitable trusts to help such trusts meet the requirements of, for example, Sections 4941 through 4945, even if the trust document lacks such language. Most states do not have similar statutes in place to help charitable LLCs to meet those requirements.

If there is a desire to create a public charity or other non-profit entity (other than a private foundation), the cost of forming and administering a state-law non-profit corporation is nominal. Here in Missouri, forming such a corporation requires an initial filing with the Secretary of State and a filing fee of $25. The non-profit corporation would then need to file an annual report with the Secretary of State, usually filed online, with an annual report fee of $15 (paper filed, annually filed), $10 (online filed, annually filed), which can be filed on a biennial basis for 2x those fee amounts. These are truly nominal expenses that the tax-exempt entity would bear by being a Missouri not-for-profit corporation. Most states have similar nominal fees for these entities.

Please "keep it simple" by not expanding the panoply of entities which can, on a stand-alone basis, apply for and receive tax-exempt status under 501(c)(3).

Very truly yours,

Thomas W Bassett
CPA & Attorney at Law, St. Louis, MO
(opinions stated herein may not reflect the opinions of my employer) 

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