Limited Liability Company
The CLLC is the “Charitable” alternative to Private Foundations. The Charitable Limited Liability Company forms a sophisticated tax minimization strategy of choice for High Income Earners. In fact, it is the same tool used by Mark Zuckerberg and his wife Dr. Priscilla Chan. Learn what it can do for you TODAY!.
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How does the Charitable LLC work?
The Chan Zuckerberg Initiative is not a 501(c)(3) tax-exempt entity. It will be treated as a pass-through entity for income tax purposes so that 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. There may be little taxable income to pass out to the Zuckerbergs because Facebook stock does not currently pay dividends.
Because it is not a private foundation, the Zuckerbergs 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, the charitable contribution that they could take each year would be limited to 20% 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 Facebook stock to the charity which would produce a charitable deduction equal to the fair market value of the stock at the date of the gift. This would not trigger a capital gain recognition at the LLC level, and the Zuckerbergs would therefore avoid paying capital gains tax on the shares gifted.
How Mark Zuckerberg benefited from his $45 billion gift of 99% of his Facebook stock to charity:
Many philanthropists, making a large contribution such as this, will set up their own private foundation to actually receive the gift.
For example, Bill and Melinda Gates donated shares of Microsoft to the Bill and Melinda Gates Foundation which is now the largest foundation in the United States. What Mark Zuckerberg and his wife Dr. Priscilla Chan are doing is transferring Facebook shares to a Delaware limited liability company (LLC) 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, also an LLC.