Charitable LLCs: What’s Good, What’s Not

What’s better than making a charitable contribution to save taxes while supporting a cause you believe in? Add in the satisfaction of helping others, leaving a legacy, and even potential public recognition, and it can be a great move.

Some people want more—such as retaining control of the assets they donated without the restrictions applicable to private foundations or even public charities! Promoters of some charitable limited liability company (charitable LLC) structures would have you believe that their charitable LLC structure allows you to achieve all those benefits.

Not surprisingly, the Internal Revenue Service (IRS) disagrees.

Many people first learned about charitable LLCs when Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, established the Chan Zuckerberg Initiative, LLC (CZI), in 2015 and pledged to give CZI substantially all of their Facebook (now Meta) shares or the net after-tax proceeds from the sale of those shares during their lives. However, the use (and misuse) of charitable LLCs predates CZI.

For many donors, potential tax benefits influence many aspects of their charitable contributions—including the choice of charity, the timing of the contribution, the assets contributed, and the amount contributed.

Contributing qualifying appreciated property held for more than one year to a charity that meets the requirements of Internal Revenue Code (IRC) section 170(c) is a very attractive way to save income taxes. That contribution can generate two significant tax benefits: First, the appreciation is not subject to income tax. Second, the fair market value of the donated property (not just its basis) may qualify for the income tax charitable contribution deduction. The tax benefit received from the deduction depends on many factors, including whether the donee charity is a public charity or private foundation (discussed in detail below), the percentage limitations of IRC section 170(b), the donor’s adjusted gross income and ability to itemize deductions, and compliance with the substantiation requirements of IRC section 170(f)(8).

LLCs are a very popular business entity. They generally provide liability protection for the members, business continuity, the ability to choose how they are taxed, flexibility in how they are managed, and few non–tax reporting or recordkeeping requirements.

Charitable organizations have traditionally been set up as either trusts or not-for-profit corporations. The flexibility LLCs offer has led many to explore the use of an LLC for charitable purposes instead of a charitable trust or not-for-profit corporation. In Notice 2021-56, the IRS set out specific requirements that an LLC’s articles of organization and operating agreement must meet so the LLC can be recognized as tax-exempt under IRC section 501(c)(3). Because the first requirement is that all LLC members must either be tax-exempt under section 501(c)(3) or a governmental unit described in section 170(c), it’s generally not possible to use an LLC in lieu of a charitable trust or not-for-profit corporation.

For more information see Bruce A Tannahill “Charitable LLCs: What’s Good, What’s Not,” ABA Probate and Property, November 3, 2025.