The L3C concept provides that the primary purpose of the organization must be charitable, with the production of income
permitted to be a secondary purpose. As with a tax-exempt charity that must have a charitable purpose by law, yet also must,
from an economic standpoint, have sufficient revenue to conduct operations, institutional decisions must be made with the
L3Cs overarching charitable purpose in mind. Thus, the L3C brings together foundations' PRIs and investments by nonexempt
parties to accomplish L3Cs primary charitable purpose through a business that, because of its inherent risk and low
likelihood of profit, simply would not be attractive solely to for-profit investors.
Precisely the same analytic framework that applies under current law to assess the purpose and fiscal operations of a taxexempt
charity will apply to an L3C. When assessing whether a "significant purpose" of a foundation's proposed investment is
the production of income for purposes of the PRI rules, Treas. Reg. § 53.4944-3(a)(2)(iii) states that is is "relevant whether
investors solely engaged in he investment for profit would be likely to make the investment on the same terms as the private
foundation." However the fact that an investment produces significant income or appreciation in the absence of other factors,
is not conclusive evidence of a significant purpose involving the production of income or the appreciation of property. In fact,
Treas. Reg. § 53.4944-3(b), Ex. 1, states, in analyzing an investment by foundation "Y," that the investment "is a programrelated
investment even though Y may earn income from the investment in an amount comparable to or higher than earnings
from conventional portfolio investments."
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