'Charitable' LLCs: an alternative to private foundations.

• Author: Joseph, Donita
• Position: Estate planning

The news in philanthropy over the last few months has been about Marie Zuckerberg and his $45 billion gift (or was it?) of 99 percent of his Facebook stock U> charily. What b the hubbub about? What did he actually do? Why is he bang both praised and criticized for taking this step? What does this mean for nonprofits going forward?

When philanthropists want to make a large contribution like this, many will set up their own private foundation to receive the gift, for example, Bill and Melinda Cates donated shares of Microsoft to the Bill and Melinda Gates Foundation and it's now the largest foundation in the United Stales.

What Mark Zuckerberg and his wife, Dr. Priscilla Chan, are doing is transferring Facebook shares to a Delaware limited liability company named the Chan Zuckerberg Initiative. This is not a new technique used to engage in philanthropic activities. Previously, Laurene Powell Jobs--Steve Jobs' widow--created the Emerson Collective, which is also an LUC.

How Does the Charitable LLC Work?

The Chan Zuckerberg Initiative will not be a 501 (cX3) tax-exempt entity It will be treated as a pass-through entity for income tax purposes; thus, all of the income, expenses and other tax attributes will flow through to the members (the Zuckerbergs) who will report that income on their individual income tax return.

Because Facebook stock does not pay dividends, there may be little taxable income to pass out to the Zuckerbergs.

Also, since it's not a private foundation, the Zuckerberg? will not receive a charitable contribution deduction when they contribute their stock to the LLC. But this may not matter to them, because, without Facebook paying dividends, their income is most likely not high enough to take advantage of the charitable deduction.

If they had made the contribution to a private foundation, tire charitable contribution that they could lake each year would be limited to 20 percent of their adjusted gross income. This could be carried over for five years, but they would never be able to utilize the full tax deduction of $45 billion.

If the Chan Zuckerberg Initiative does decide to make contributions to charity as a pass-through entity the LLC would pass those deductions out to the Zuckerbergs. Instead of giving cash to the charities, the LLC would most likely give appreciated Face book stock. This would produce a charitable deduction equal to the fair market value of the stock at the date of the gift, but would not trigger any...