Common Control and Tax-Exempt Entities

26 CFR § 1.414(c)-5 provides: "common control exists between an exempt organization and another organization if at least 80 percent of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization."

I'm trying to determine if a not-for-profit corporation and a LLC are in a common control group. Obviously a LLC does not have directors in the conventional sense, but what if it has a board of managers that are the functional equivalent to a board of directors? Does anyone think that the managers should be considered directors in this situation? The tax-exempt corp does have complete control over who the managers are. Should also point out the LLC is treated as a partnership for tax purposes. 

Thanks! 

I remember working with this rule---and I have two LLCs and I would think that the answer is yes, if it has a Board of Managers that is at least 80% common representatives.

But, in fairness, I have not looked at the regs in a while.

JG-12:

Is the limited-liability company a tax-exempt organization or a taxable business?

Which person owns the LLC’s capital interests?

Which person owns the LLC’s profits interests (if any)?

Does any person have a guaranteed income interest?

Which person owns the LLC’s loss interests (if any)?

On 9/10/2021 at 8:39 AM, Peter Gulia said:

JG-12:

Is the limited-liability company a tax-exempt organization or a taxable business?

Which person owns the LLC’s capital interests?

Which person owns the LLC’s profits interests (if any)?

Does any person have a guaranteed income interest?

Which person owns the LLC’s loss interests (if any)?

The LLC is a taxable business. 

The LLC's capital and profit interests are owned by the non-profit corp. 

No.

Not sure, but if it's anyone it is the non-profit. 

If the not-for-profit corporation owns all of the capital and profits interests in the limited-liability company, shouldn't you presume that the corporation controls the limited-liability company?

Is the LLC a disregarded entity?

19 hours ago, Peter Gulia said:

If the not-for-profit corporation owns all of the capital and profits interests in the limited-liability company, shouldn't you presume that the corporation controls the limited-liability company?

I would think so, but by a literal reading of the regs, it's not obvious to me what the theory should be. 

18 hours ago, QDROphile said:

Is the LLC a disregarded entity?

No.

1 minute ago, JG-12 said:

No.

I should add there is a second member who owns something like 40% of the LLC.