"Uncharitable” Policy for Charities: Use of Disregarded LLCs by I.R.C. § 501(c)(3) Organizations is a Trap for the Unwary in Certain States

This article explains how the imposition of the Texas Franchise Tax on Section 501(c)(3) Charities with subsidiary LLC structures in place arises. The article also discusses why there is no compelling reason for the Comptroller to continue with its policy of taxing Section 501(c)(3) Charities that choose to operate in structures using wholly owned LLCs, discusses the ramifications of the Comptroller’s policy, and sets forth proposed solutions to remedy this potentially costly problem for Texas charities.