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Nonprofit Single-Member LLCs

According to UpCounsel, “a single-member nonprofit corporation is a corporation that has been established for charitable purposes and has only one owner.” That one owner will be your 508.

According to the IRS, “An LLC that has one member will be classified as a “disregarded entity.” A disregarded entity is one that is disregarded as an entity separate from its owner. An individual owner of a single-member disregarded LLC that operates a trade or business is subject to the tax on net earnings from self-employment in the same manner as a sole proprietorship…If the single-member disregarded LLC is owned by a corporation or partnership, the activities of the LLC should be reflected on its owner’s federal tax return as a division of the corporation or partnership.”

Normally, parent organizations are required to report the activities of their single-member LLCs on Form 990. In terms of tax reporting, the single-member LLC is treated as if it were a department of the parent charity instead of being treated as a separate organization. However, as a 508, your church, integrated auxiliary, or conventions or associations of churches is exempt from Form 990 filing requirements (26 U.S. Code § 6033).

To make sure you maintain the tax-exempt status of your single-member LLC, you need to be sure that the organization is only engaged in exempt activities, and that your organizational documents state that your organization will only participate in these activities.

“The I.R.S. examined 1.4 million individual income tax returns in 2010, about 1 percent of the total number filed. In 2018, the latest year with available data when Republicans started making these claims, audits decreased to 370,000, or about 0.2 percent… The budget office estimated increasing I.R.S. funding would return enforcement to its 2010 levels. Doing so would result in about 1.2 million more audits; of those, 583,000 would target people making less than $75,000.”

The New York Times, “Fact-Checking the Misleading Claim About 87,000 Tax Agents”, November 6, 2022

“…For example, you educate believers on national issues that are central to their belief in the Bible as the inerrant Word of God. Specifically, you educate Christians on what the bible says in areas where they can be instrumental including the areas of sanctity of life, the definition of marriage, biblical justice, freedom of speech, defense, and borders and immigration, U.S. and Israel relations. The bible teachings are typically affiliated with the Republican party and candidates. This disqualifies you from exemption under IRC Section 501(c)(3).”

Stephen A. Martin, IRS Director, Exempt Organizations, Rulings and Agreements