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Delta-Lawyer
Delta-Lawyer, Attorney
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Experience:  10 years practicing IP law and general litigation
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We are starting a small (40 member) timeshare of sorts in the

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We are starting a small (40 member) timeshare of sorts in the form of an LLC. Would pass-through taxation be the best way to structure it?

The LLC will have a mutually beneficial tax relationship with a 501c3 that will get use of a portion of the property to run summer camps in return for its lease being donated as a right off.

I'm unclear if pass-through taxation is best or not.

Thank you.

Gregory

I hope this message finds you well, and congratulations on the timeshare. It is my legal opinion that you will need to have a two-tiered structure relative to this establishment. The LLC portion should be pass-through taxation. You can structure the LLC to possess some components of the property (likely that which will be inhabited by the owners). This component will fall under the property of strictly the LLC and will have pass through tax...which along with corporate protection...is one of the key advantages of an LLC.

 

The charitable component of the venture should have other property and functionality separate and apart from the charitable camp portion of this entity as a whole. The two are for tax purposes mutually exclusive in some ways and therefore should be set up as such.

 

I would highly recommend either retaining a tax lawyer in your area or a skilled CPA to handle the structure, corporate filings and the like because matters such as this can be viewed with heavy eyes by the IRS, through no fault of your own.

 

In summary, you can do both simultaneously, but you are going to have to be clever with the way you structure things and with what legal entity owns certain property in a legal sense.

 

Let me know if you have any other questions or comments. I want to make sure you are satisfied with the answers given herein.

 

Best wishes going forward.

Customer: replied 4 years ago.

Excellent. Concerning your advice"


 


"The charitable component of the venture should have other property and functionality separate and apart from the charitable camp portion of this entity as a whole. The two are for tax purposes mutually exclusive in some ways and


therefore should be set up as such".


 


So are you saying that the 501c3 cannot only be involved with running programs on the timeshare property? And if this is the case? What is an example of the minimal amount of property and functionality the 501c3 might have elsewhere?


 

That is correct...the two entities should be as distinct as possible. An example would be the timeshare LLC owning only the buildings or structures that are used as residences or temporary housing. The 501(c)(3) could own other property such as the land, the equipment used at the camp (boats, walking paths, horse stables, etc.). Each should have their own dedicated property that is registered in legal fashion as owned by that separate entity.
Customer: replied 4 years ago.

Does it not work for the LLC to own everything and for the non-profit to own nothing, with instead it being donated a yearly lease which details access to the property.


 


...and if not why?


 


Thanks for your great insight.


 


Gregory

That would work fine as well. While not explicit in the law, in my experience, the IRS likes to see something tangible associated with 501(c)(3)s. That said, it is not required. The issue you want to avoid is the existence of the non-profit to prop up a for-profit. That would not be something you want to have to defend, because you will be guilty until shown innocent in the eyes of the IRS.

 

As stated before, get a skilled tax lawyer or accountant in your area in on this on the front end so that if there are issues in the future, they already have an idea of how to respond to the IRS.

Delta-Lawyer and other Legal Specialists are ready to help you
Customer: replied 4 years ago.

Thank you. That helps a lot.

Good deal...best wishes going forward. Sounds like a lot of fun.

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