IRS Issues Guidance on LLC Tax Exemption

Blog
October 29, 2021

The IRS released guidance on how a Limited Liability Company (LLC) can obtain tax exempt status. Notice 2021-56 states that the following requirements must be included in the articles of organization and operating agreement before submitting FORM 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, to the IRS:

  • The LLC must be organized and operated exclusively for exempt purposes
  • Assets are dedicated to an exempt purpose and do not benefit private interests
  • Each member of the LLC must be either a section 501(c)(3) entity or a governmental unit
  • Have a charitable dissolution provision where assets are distributed for one or more exempt purpose upon dissolution
  • Articles of organization and operating agreement must be consistent with applicate state law and are legally enforceable
  • These requirements may be stated in the operating agreement only, if the LLC is formed in a state that prohibits inclusion in the articles of organization

As stated in the Notice, the IRS is requesting comments on these requirements and other specified questions.