Wednesday, November 28, 2007

Charities Using Limited Liability Companies to Hold Real Estate

Charities should not use a limited liability company to hold real estate in Massachusetts. Robert E. Cowden wrote an article about this in the November/December 2007 issue of the Boston Bar Journal.

The Massachusetts Appellate Tax Board ruled that even though a piece of property was owned by a single member limited liability company, whose sole member was a charitable corporation, the property did not qualify for property tax exemption. CFM Buckley/North, LLC v. Board of Assessors of the Town of Greenfield.

The Third Clause of M.G.L. c.59, s.5 provides for a property tax exemption for a charitable organization, which is defined as:

(1) a literary, benevolent, charitable or scientific institution or temperance society incorporated in the commonwealth, and (2) a trust for literary, benevolent, charitable, scientific or temperance purposes if it is established by a declaration of trust executed in the commonwealth . . . . [emphasis added]
The Appellate Tax Board found that a limited liability company is not "incorporated" and therefore does not qualify for the exemption.

On a similar note, other protections for charitable organizations may be jeopardized if they use a limited liability company to hold some of their real estate assets.

For instance, the Dover Amendment M.G.L. c.40A, s.3 provides that:
No zoning ordinance or by-law shall regulate or restrict the interior area of a single family residential building nor shall any such ordinance or by-law prohibit, regulate or restrict the use of land or structures for religious purposes or for educational purposes on land owned or leased by the commonwealth or any of its agencies, subdivisions or bodies politic or by a religious sect or denomination, or by a nonprofit educational corporation. . . .
Also the charitable liability cap in M.G.L. c.231, s.85K is applicable to:
corporation, trustees of a trust, or members of an association that said corporation, trust, or association. . . .
A limited liability company may not be able to take advantage of these protections.

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