LLC is the New 501
A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs.
Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are "passed through" the business to each member of the LLC. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
The Sunlight Foundation says of LLCs:
Not only can they donate money to super PACs while obscuring the identity or identities of the donors behind them, they can also spend directly to influence elections. A recently formed conservative group that churns out ads attacking Democrats, America Rising, organized as an LLC rather than a political committee, and CQ Roll Call reported that conservatives‚ increasingly frustrated with the Internal Revenue Service handling of the tea party nonprofit applications, may turn to LLCs as an alternative to dark money groups like Crossroads GPS that do not disclose their donors.
The latest FEC filing from American Crossroads lists two donors, LMD Properties LLC and Boston Holding Company LLC, which gave $50,000 and $100,000 contributions, respectively. Neither company has a website and neither is listed at the addresses they provided American Crossroads.
In the CQ report, Eliza Carney explains:
“Many of these groups are being formed intentionally in a very low-key way,” says Robert Kelner, who chairs the election law and political law practice group at Covington & Burling, an international business and corporate law firm. “So it may be a while before they become widely known and visible.”
But Kelner says numerous clients are approaching him with questions about how to organize themselves as for-profits, or as limited liability companies. They’re preparing for the possibility that the IRS will impose new political curbs on 501(c)(4) social-welfare groups, says Kelner. Even if the new IRS rules never take effect, conservative and tea party organizers, in particular, are convinced that the agency is on a partisan campaign to shut them down. IRS and administration officials say the agency’s mistakes in the tea party cases resulted from confusion and human error, not ill intent.
“There’s an increasing appetite to get out from under IRS scrutiny,” confirms Indiana election lawyer James Bopp Jr., who has led numerous constitutional challenges to campaign finance restrictions.
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“Regardless of whether these [IRS] rules die, there’s already a process that’s unfolding of deleveraging these social-welfare organizations,” says Kelner. “Money is beginning to flow away from them toward taxable vehicles.” Indeed, Kelner argues, “I think this whole kerfuffle about the proposed (c)(4) regulations is really an echo of the last war, rather than the next war.”
