Yes, a limited liability company (LLC) can file Form 1023 to apply for recognition of exemption under section 501(c)(3) of the Internal Revenue Code. However, there are specific requirements that the LLC must meet to qualify for tax-exempt status.
- Organizational Requirements: The LLC must be organized exclusively for exempt purposes as defined under section 501(c)(3). This means that its articles of organization must limit the purposes of the organization to one or more exempt purposes and must not expressly empower the organization to engage in activities that are not in furtherance of these purposes, except as an insubstantial part of its activities (Reg. section 1.501(c)(3)-1(b)(1)).
- State Law Compliance: The law of the state in which the LLC is created is controlling when construing the terms of the organization’s articles (Reg. section 1.501(c)(3)-1(b)(5)). However, for federal tax purposes, whether an organization is an entity separate from its owners is determined by federal tax law.
- Membership Requirements: Historically, the IRS required that all members of the LLC be section 501(c)(3) organizations, governmental units, or wholly owned instrumentalities of a state or political subdivision of a state. Notice 2021-56 has clarified that the IRS will issue a favorable determination letter to an LLC only if:
- Each member of the LLC is either an organization described in section 501(c)(3) and exempt from taxation under section 501(a) or a governmental unit described in section 170(c)(1) (or a wholly owned instrumentality of a governmental unit).
- The LLC’s articles of organization and operating agreement include provisions requiring that each member be a section 501(c)(3) organization or a governmental unit.
- The LLC has express charitable purposes and charitable dissolution provisions.
- The LLC includes the chapter 42 compliance provisions described in section 508(e)(1) if it is a private foundation.
- The LLC has an acceptable contingency plan if one or more members cease to be section 501(c)(3) organizations or governmental units.
- Legal Enforceability: The LLC must represent that all provisions in its articles of organization and operating agreement are consistent with applicable state LLC law and are legally enforceable.
- Application Process: The LLC must complete and submit Form 1023 electronically through Pay.gov, including paying the correct user fee. The application must include detailed information about the LLC’s past, present, and planned activities, financial data, and organizing documents.
By meeting these requirements, an LLC can qualify for tax-exempt status under section 501(c)(3) and file Form 1023 to receive a determination letter from the IRS.
Sources:
Instructions for Form 1023 (01/2020)
Publication 557 (1/2024)
Instructions for Form 1024 (01/2022)
IRM Part 7. Rulings and Agreements. Chapter 20. Exempt Organizations Determination Letter Program. Section 9. Processing Form 1023-EZ
IRS Issues Standards for LLCs to Qualify as Tax Exempt
