Signed, Sealed, and Delivered: IRS Guidance for LLCs Seeking Tax-Exempt Determination Letters

The Internal Revenue Service has provided guidance clarifying the standards a limited liability company (LLC) must satisfy to receive a determination letter recognizing it as tax-exempt under I.R.C. Section 501(a) and as described in I.R.C. Section 501(c)(3). One requirement that must be met before a favorable determination letter is issued to an LLC is that both the LLC’s articles of organization and its operating agreement include certain provisions. The clarified standards issued by the IRS provide welcome guidance for taxpayers because the regulations under I.R.C. Section 501(c)(3) predate the enactment of the first LLC statute in the United States.  I.R.S. Notice 2021-56, 2021-45 IRB 1 (Oct. 12, 2021).

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Practical Guidance Updates 

Featuring the latest updates from your Practical Guidance account.    

• Tax Key Legal Developments Tracker (Federal) 
  Stay informed on new developments: 
  • Business Entities.  IRS posts detailed reporting directions for certain pass-through entities and taxpayers reporting of partnership interests held in connection with the performance of services, often referred to as “carried interests,” in the form of frequently asked questions (FAQs). IR-2021-215 (Nov. 3, 2021).
  • Employment/Employee Benefits. IRS updates 401(k) plan and other retirement and health plan limits that will apply for 2022, as adjusted for cost-of-living increases, the limit for 401(k) elective deferrals rising to $20,500 ($27,000 for taxpayers age 50 or older by Dec. 31, 2022, the $6,500 catch-up limit not rising). For additional limits, see R.S. Notice 2021-61. See also Cost of Living Adjustments Chart for Employee Benefit Plans.
  • Individual Income Tax. IRS provides guidance to individual taxpayers to address the federal income tax treatment and information reporting requirements for payments made to them (or on their behalf) by certain entities with funds allocated from the Homeowner Assistance Fund. Proc. 2021-47.
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