The Service was busy on our nation's birthday. In another Private Letter Ruling released on July 4, 2008 the IRS spelled out the 12 requirements that both the articles of organization (if state law permits) and the operating agreement must satisfy in order for an Service to recognize the 501(c)(3) exemption of an LLC that otherwise qualifies for the exemption.
The organizational language must:
1. Include a specific statement limiting the LLC's activities to one or more exempt purposes.
2. Specify that the LLC is operated exclusively to further the charitable or social welfare purposes of its members.
3. Require the LLC members to be section 501(c)(3) or (4) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision (a "Qualified Member").
4. Prohibit any transfer of a membership interest to a transferee other than a Qualified Member.
5. State that the LLC, interests in the LLC, or its assets may only be availed of or transferred to any nonmember in exchange for fair market value unless the nonmember would qualify as a Qualified Member.
6. Guarantee that upon dissolution the LLC's assets will continue to be devoted to charitable purposes.
7. Require that any amendments to the articles of organization and operating agreement must be consistent with 501(c)(3).
8. Prohibit the LLC from merging with or converting into a for-profit entity.
9. Require that the LLC not distribute any assets to members who cease to be a Qualified Member.
10. Contain a contingency plan in the event one or more members ceases to be a Qualified Member.
11. State that the "LLC's exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC." (Not really sure what that means!)
12. Represent that all of its organizing document provisions are consistent with state LLC law and are enforceable at law and in equity.
PLR 200827041
-Marc Ward
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