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Assignment of Limited Liability Company Interest

By Joe Stone, J.D.

• Do All Members of an LLC Have to Sign the Purchase Contract?

As a limited liability company member, you usually have the right to assign your membership interest in the LLC to a nonmember, subject to the requirements of state LLC law. Typically, the assignment provides the nonmember with the right to receive your share of any LLC profits but does not give the nonmember any of your management rights. The remaining LLC members usually decide whether the nonmember is admitted as a member with management rights.

Assignments

An assignment involving your LLC membership occurs whenever there is a transfer of your property rights in the membership. The transfer of rights can occur voluntarily such as in a sale of your membership to cash out of the LLC. Another type of voluntary transfer involves using your membership to satisfy your personal debts in lieu of bankruptcy, generally referred to as an assignment for the benefit of creditors. A transfer of your membership to your legal heirs or designated beneficiaries occurs by operation of law upon your death. In each situation, the assignment results in a complete transfer of your property rights in your LLC membership.

LLC Membership Interest

An LLC is commonly considered a cross between a corporation and partnership. LLC members enjoy personal liability protection, as do a corporation's shareholders, and the ability to structure the LLC management to suit their own needs, as in a partnership. An LLC is also like a partnership in that the profits and losses of the LLC are passed through to each member just as in a partnership. As a result, your LLC membership consists of two parts: an economic interest -- the right to share in the profits and losses of the LLC; and a control interest -- the right to vote on and manage the affairs of the LLC.

Membership Transfer Rules

If a member assigns his LLC membership to a nonmember without the consent of the other members, state law typically limits the assignment to only economic rights, not control rights. For example, Arizona Revised Statute 29-732 states that “the assignment of an interest in a limited liability company does not…entitle the assignee to participate in the management of the business and affairs of the limited liability company or to become or to exercise the rights of a member.” The Revised Uniform Limited Liability Act, which has been adopted in nine states as of June 2013, contains a similar provision that states, "the transferor retains the rights of a member other than the interest in distributions transferred and retains all duties and obligations of a member." To acquire control rights, the LLC members must consent to extend full membership to the nonmember.

Other Considerations

LLC members usually create an operating agreement to govern their rights and duties to the LLC and each other. Unless specifically prohibited by state law, the members can agree to provisions in the operating agreement that alter the default rules that apply under state law. In anticipation of future assignments, the members can include in an operating agreement the rules for whether control rights can be assigned with economic rights and under what conditions.

• FindLaw: Legal Dictionary -- Assignment
• Texas Secretary of State: Selecting A Business Structure
• The Free Dictionary: Limited Liability Company
• Arizona Legislature: Arizona Revised Statute 29-732
• National Conference of Commissioners on Uniform State Laws: Revised Uniform Limited Liability Act
• National Conference of Commissioners on Uniform State Laws: Enactment Status Map -- RULLCA
• SBA.gov: Operating Agreements; The Basics

Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.

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Assignment of Interest In LLC: Everything You Need to Know

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. 3 min read updated on February 01, 2023

Updated October 28, 2020:

Assignment of interest in LLCs happens when a member communicates to other members his/her intention to transfer part or all of his ownership rights in the LLC to another entity. The assignment is usually done as a means for members to provide collateral for personal loans, settle debts, or leave the LLC. The member (assignor) and the person assigned (assignee) sign a document called the Membership Assignment of Interest.

Why a Member May Want to Assign Interest

A member may choose to assign interest for a number of reasons.

• The assignment of interest may happen as collateral to a loan to one of the members.
• Some members can assign interest to settle debts. The assignment will be effective until the debt is cleared.
• An assignment of interest can also' be done  to a member's legal heirs , going into effect upon the death of a member. 

The Rights and Limitations of the Assignee

The laws governing LLC membership interest assignments vary considerably from one state to another. 

• Most states prohibit the assignee from participating in the LLC's operations or decisions unless the Articles of Organization have this provision.
• An assignee is protected from liability from the assignor until the assignee becomes a member in most states. However, the law in a few states, including California and Florida, states that the assignee does get the assignor's liability.
• Should the assignee become a member after the assignment, he is only entitled to the rights and restrictions the assignor had.
• The assignment usually gives the assignee the right to receive the assignor's share of the profits — but not necessarily the other rights.

The Rights and Limitations of the Assignor

• In many states, all LLC members have the right to assign membership interest.
• In most states, assigning interest does not necessarily lead to forfeiting of voting and management rights and can be temporary. Texas law, on the other hand, states that the assignor ceases to be a member of the LLC after the assignment.

The Rights and Limitations of Other Members

• All members of the LLC have to be notified of any type of assignment.
• Some states require the assignment of interest to be approved by all members.
• The new person who has been assigned interest does not necessarily become a member even if the assigner has decided to leave the LLC. The other members can decide whether to admit the assignee as a member or not. Should a member assign interest without the input of other members, the interest is normally limited to financial benefits.
• In a two-member LLC, one member can easily transfer the interest to the other. 

The Membership Interest Assignment Document

The LLC's operating agreement should explain the rights of members on issues of transfer of interest, and the agreement should be followed during the assignment process. The Membership Interest Assignment acts as a record of the agreement, and the LLC normally keeps a copy of the document. The law in most states does not provide a formal template of the Membership Interest Assignment document but lists what should be included in the document. The document should have the following details:

• Percentage of interest that will go to the assignee 
• Whether the assignee will have voting rights
• The signatures of the assignor and the assignee

Assignment of Interest Versus Selling Ownership Stake

The assignment of interest is typically different from selling the ownership stake . Selling a member's ownership stake in the LLC requires unanimous approval by the other members. A departing member may also assign his membership to another member.

If a member is being paid to transfer interest, this is treated for tax purposes as a sale, and the selling member's gains might be liable to capital gains tax. Even if a departing member is not paid for his interest, if the departure results in the assignee getting the departing members' share of liability, the departure is seen as an exchange or sale.

Assignment of Interest Versus Abandoning an LLC

If a member wants to withdraw interest in an LLC, he/she can choose to simply legally abandon the LLC in most states. The abandoning member should give some kind of notice to the other members explaining that he is abandoning membership. Abandoning membership does not usually require the approval of other members.

Abandoning an LLC does not absolve the member of liability he/she may have incurred when still a member.

If you need help with the assignment of interest in LLCs, you can  post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Assignment of Membership Interest: The Ultimate Guide for Your LLC

LegalGPS : November 30, 2023 at 8:16 AM

As a business owner, there may come a time when you need to transfer ownership of your company or acquire additional members. In these situations, an assignment of membership interest is a critical step in the process. This blog post aims to provide you with a comprehensive guide on everything you need to know about the assignment of membership interest and how to navigate the procedure efficiently. So, let's dive into the world of LLC membership interest transfers and learn how to secure your business!

What is an Assignment of Membership Interest?

An assignment of membership interest is a document that allows a member of an LLC to transfer their ownership share in the company to another person or entity. This can be done in the form of a sale or gift, which are two different scenarios that generally require different types of paperwork. An assignment is typically signed by the parties involved and delivered to the Secretary of State's office for filing. However, this process can vary depending on where you live and whether your LLC has members other than yourself as well as additional documents required by state law.

Necessary Approvals and Consent

Before initiating the assignment process, it's essential to review the operating agreement of your LLC, as it may contain specific guidelines on how to assign membership interests.

Often, these agreements require the express consent of the other LLC members before any assignment can take place. To avoid any potential disputes down the line, always seek the required approvals before moving forward with the assignment process.

Impact on Ownership, Voting, and Profit Rights

It's essential to understand that assigning membership interests can affect various aspects of the LLC, including ownership, voting rights, and profit distribution. A complete assignment transfers all ownership rights and obligations to the new member, effectively removing the original member from the LLC. For example, if a member assigns his or her interest, the new member inherits all ownership rights and obligations associated with that interest. This includes any contractual obligations that may be attached to the membership interest (e.g., a mortgage). If there is no assignment of interests clause in your operating agreement, then you will need to get approval from all other members for an assignment to take place.

On the other hand, a partial assignment permits the original member to retain some ownership rights while transferring a portion of their interest to another party. To avoid unintended consequences, it's crucial to clearly define the rights and responsibilities of each party during the assignment process.

Types of Membership Interest Transfers

Membership interest transfers can be either complete or partial, depending on the desired outcome. Understanding the differences between these two types of transfers is crucial in making informed decisions about your LLC.

Complete Assignment

A complete assignment occurs when a member transfers their entire interest in the LLC to another party, effectively relinquishing all ownership rights and obligations. This type of transfer is often used when a member exits the business or when a new individual or entity acquires the LLC.

For example, a member may sell their interest to another party that is interested in purchasing their share of the business. Complete assignment is also used when an individual or entity wants to purchase all of the interests in an LLC. In this case, the seller must receive unanimous approval from the other members before they can transfer their entire interest.

Partial Assignment

Unlike a complete assignment, a partial assignment involves transferring only a portion of a member's interest to another party. This type of assignment enables the member to retain some ownership in the business, sharing rights, and responsibilities proportionately with the new assignee. Partial assignments are often used when adding new members to an LLC or when existing members need to redistribute their interests.

A common real-world example is when a member receives an offer from another company to purchase their interest in the LLC. They might want to keep some ownership so that they can continue to receive profits from the business, but they also may want out of some of the responsibilities. By transferring only a partial interest in their membership share, both parties can benefit: The seller receives a lump sum payment for their share of the LLC and is no longer liable for certain financial obligations or other tasks.

How to Draft an Assignment of Membership Interest Agreement

A well-drafted assignment of membership interest agreement can help ensure a smooth and legally compliant transfer process. Here is a breakdown of the key elements to include in your agreement, followed by a step-by-step guide on drafting the document.

Key elements to include:

The names of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name of your LLC and the state where it was formed

A description of the membership interest being transferred (percentage, rights, and obligations)

Any required approvals or consents from other LLC members

Effective date of the assignment

Signatures of all parties involved, including any relevant witnesses or notary public

Step 1: Gather Relevant Information

Before you begin drafting the agreement, gather all pertinent data about the parties involved and the membership interest being transferred. You'll need information such as:

The names and contact information of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name and formation details of your LLC, including the state where it was registered

The percentage and value of the membership interest being transferred

Any specific rights and obligations associated with the membership interest

Step 2: Review the LLC's Operating Agreement

Examine your LLC's operating agreement to ensure you adhere to any predetermined guidelines on assigning membership interests. The operating agreement may outline specific procedures, required approvals, or additional documentation necessary to complete the assignment process.

If your LLC doesn't have an operating agreement or if it's silent on this matter, follow your state's default LLC rules and regulations.

Step 3: Obtain Necessary Approvals and Consents

Before drafting the assignment agreement, obtain any necessary approvals or consents from other LLC members as required by the operating agreement or state law. You may need to hold a members' meeting to discuss the proposed assignment and document members' consent in the form of a written resolution.

Step 4: Outline the Membership Interest Being Transferred

Detail the membership interest being transferred in the Assignment of Membership Interest Agreement. Specify whether the transfer is complete or partial, and include:

The percentage of ownership interest being assigned

Allocated profits and losses, if applicable

Voting rights associated with the transferred interest

The assignor's rights and obligations that are being transferred and retained

Any capital contribution requirements

Step 5: Determine the Effective Date of the Assignment

Set an effective date for the assignment, which is when the rights and obligations associated with the membership interest will transfer from the assignor to the assignee.

This date is crucial for legal and tax purposes and helps both parties plan for the transition. If you don’t specify an effective date in the assignment agreement, your state's law may determine when the transfer takes effect.

Step 6: Specify Conditions and Representations

In the agreement, outline any conditions that must be met before the assignment becomes effective. These could include obtaining certain regulatory approvals, fulfilling specific obligations, or making required capital contributions.

Additionally, you may include representations from the assignor attesting that they have the legal authority to execute the assignment. Doing this is important because it can prevent a third party from challenging the assignment on grounds of lack of authority. If the assignor is an LLC or corporation, be sure to specify that it must be in good standing with all necessary state and federal regulatory agencies.

Step 7: Address Tax and Liability Issues

Clearly state that the assignee will assume responsibility for any taxes, liabilities, and obligations attributable to the membership interest being transferred from the effective date of the assignment. You may also include indemnification provisions that protect each party from any potential claims arising from the other party's actions.

For example, you can include a provision that provides the assignor with protection against any claims arising from the transfer of membership interests. This is especially important if your LLC has been sued by a member, visitor, or third party while it was operating under its current management structure.

Step 8: Draft the Entire Agreement and Governing Law Clauses

In the closing sections of the assignment agreement, include clauses stating that the agreement represents the entire understanding between the parties concerning the assignment and supersedes any previous agreements or negotiations. Specify that any modifications to the agreement must be made in writing and signed by both parties. Finally, identify the governing law that will apply to the agreement, which is generally the state law where your LLC is registered.

This would look like this:

Step 9: Review and Sign the Assignment Agreement

Once you've drafted the Assignment of Membership Interest Agreement, ensure that all parties carefully review the document to verify its accuracy and completeness. Request a legal review by an attorney, if necessary. Gather the assignor, assignee, and any necessary witnesses or notary public to sign the agreement, making it legally binding.

Sometimes the assignor and assignee will sign the document at different times. If this is the case, then you should specify when each party must sign in your Assignment Agreement.

Importance of a Professionally-drafted Contract Template

To ensure a smooth and error-free assignment process, it's highly recommended to use a professionally-drafted contract template. While DIY options might seem tempting, utilizing an expertly-crafted template provides several distinct advantages.

Advantages of using a professionally-created template:

Accuracy and Compliance: Professionally-drafted templates are designed with state-specific regulations in mind, ensuring that your agreement complies with all necessary legal requirements.

Time and Cost Savings: With a pre-written template, you save valuable time and resources that can be better spent growing your business.

Reduced Legal Risk: Legal templates created by experienced professionals significantly reduce the likelihood of errors and omissions that could lead to disputes or litigations down the road.

How our contract templates stand out from the rest:

We understand the unique needs of entrepreneurs and business owners. Our contract templates are designed to provide a straightforward, user-friendly experience that empowers you with the knowledge and tools you need to navigate complex legal processes with ease. By choosing our Assignment of Membership Interest Agreement template, you can rest assured that your business is in safe hands. Click here to get started!

Frequently Asked Questions (FAQs) about Assignment of Membership Interest

As you embark on the journey of assigning membership interest in your LLC, here are some frequently asked questions to help address any concerns you may have:

Is an assignment of membership interest the same as a sale of an LLC? No. While both processes involve transferring interests or assets, a sale of an LLC typically entails the sale of the entire business, whereas an assignment of membership interest relates to the transfer of some or all membership interests between parties.

Do I need an attorney to help draft my assignment of membership interest agreement? While not mandatory, seeking legal advice ensures that your agreement complies with all relevant regulations, minimizing potential legal risks. If you prefer a more cost-effective solution, consider using a professionally-drafted contract template like the ones we offer at [Your Company Name].

Can I assign my membership interest without the approval of other LLC members? This depends on your LLC's operating agreement and state laws. It's essential to review these regulations and obtain any necessary approvals or consents before proceeding with the assignment process.

Do you need a lawyer for this?

The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes ( especially if you have multiple owners ). But often for single-owner businesses, you don't   need a lawyer to start your business .

Many business owners instead use tools like  Legal GPS for Business , which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.

We hope this guide provides valuable insight into the process of assigning membership interest in your LLC. By understanding the legal requirements, implications, and steps involved, you can navigate this essential task with confidence. Ready to secure your business with a professionally-drafted contract template? Visit our website to purchase the reliable and user-friendly Assignment of Membership Interest Agreement template that enables your business success.

Member Economic Interest Assignment (NY LLC)

This Member Economic Interest Assignment (NY LLC) template can be used by a member of a limited liability company (LLC) to assign all or a share of the member’s economic interests in the LLC to a creditor. This template includes practical guidance and drafting notes. The agreement should set forth all the relevant terms and conditions for the assignment, including the specific economic interest in the LLC being assigned under the agreement, the duration of the assignment, and a description of the underlying obligation or other reason for which the assignment is based. This template may be tailored to suit each transaction. For more information, see Ownership Interests (NY LLC) and Management and Indemnification (NY LLC).

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Ensuring that allocations of LLC tax items are respected

• Partnership & LLC Taxation
• Allocations & Substantial Economic Effect

Allocations of limited liability company (LLC) tax items (assuming the LLC is classified as a partnership for federal income tax purposes) must be made under one of two allocation methods to be valid under Sec. 704(b) and the related regulations (Regs. Sec. 1. 704 - 1 (b)(1)(i)):

• The allocations must be in accordance with the members' interests in the LLC (technically called PIP — for partners' interests in the partnership); or
• The allocations must be made in accordance with the substantial-economic-effect safe-harbor rules.

These two methods of validating allocations are separate alternatives. The tax allocations need not have substantial economic effect; it is only necessary that the tax allocations be in accordance with the PIP. The substantial - economic - effect rules are strictly a safe harbor.

Because the rules for determining members' interests in the LLC are broad and general, the regulations provide an alternative safe harbor — the substantial - economic - effect rules — with which an LLC can comply. These safe - harbor allocation rules contain the capital account bookkeeping rules for recording the economic (not tax) results of LLC operations. Once the economic bookkeeping has been properly done, the allocation of tax results among the members must be made in a manner consistent with the allocation of the corresponding economic results.

For example, assume two equal members own LLC interests all year and have identical book capital accounts. If the operating agreement allocates the overall economic gain and loss between the two members 50/50, it cannot allocate the tax results differently. Likewise, if the members agree to specially allocate one item for economic purposes, they must allocate the associated tax results for that item in the same way.

Following the safe - harbor rules may require a considerable amount of additional recordkeeping and analysis to maintain separate book (economic) capital accounts and make required revaluations of LLC property and member capital accounts.

Certain tax allocations do not have any corresponding economic element. Examples include allocations of tax credits, percentage depletion in excess of cost, and deductions related to nonrecourse liabilities. Safe - harbor allocations of these items must be made in accordance with PIP under special rules set forth in Regs. Sec. 1. 704 - 1 (b)(3).

Sec. 704 is not the exclusive test for determining the validity and consequences of a tax allocation. Other tax principles also must be considered, such as whether the allocation involves an assignment of income, misallocation of income among related parties (see Sec. 482), LLC interests created by gift (including a purchase by a family member) (see Sec. 704(e)), employee compensation (see Secs. 83 and 707(a)), a gift (see Sec. 2501), or a sale (see Secs. 707(a) and 1001). In other words, while an allocation may satisfy the Sec. 704(b) rules, other Code sections and related IRS guidance may still affect the tax treatment of that allocation.

Not only must an LLC member have a profit motive in entering into an LLC arrangement, but the LLC transactions themselves must also have economic substance. Otherwise, the IRS can disregard the LLC for tax purposes. Furthermore, the IRS has the authority to recast a transaction if the LLC violates the anti - abuse regulations.

Anti-abuse regulations

A purported LLC can be disregarded, in whole or in part, if the LLC is formed or availed of in connection with a transaction having a principal purpose of substantially reducing the present value of the members' aggregate federal tax liabilities and the transaction is inconsistent with the intent of Subchapter K (the partnership section of the Internal Revenue Code). The intent of Subchapter K is set forth in five tests, all of which must be met (Regs. Sec. 1. 701 - 2 (a)):

• The entity must be bona fide;
• Each transaction must have a bona fide and substantial business purpose;
• The transaction must be respected under substance-over-form principles;
• The tax consequences must accurately reflect the members' economic agreement; and
• The tax consequences must clearly reflect the members' income.

Failure to pass these tests opens the door for the IRS to disregard transactions, disregard one or more members, disregard the LLC, or otherwise ignore or change the transactions to reflect reality.

The regulations also give the IRS the power to treat any LLC as an aggregate of the members, in whole or in part, if necessary to carry out the purpose of a Code provision or regulation (Regs. Sec. 1. 701 - 2 (e)).

In Countryside Limited Partnership , T.C. Memo. 2008 - 3 , however, the Tax Court denied the IRS's attempt to use the economic substance doctrine and the anti - abuse regulations to recharacterize a partnership transaction. The case involved a liquidating distribution that was structured to defer tax by distributing property rather than cash to the partners. The partners conceded that tax avoidance was the sole motivation for the structure of the transaction. However, the court found that the transactions had economic substance and the anti - abuse regulations could not be applied. While the employed means were designed to avoid recognition of gain by the liquidated partners, those means served a genuine, nontax business purpose (i.e., to convert the liquidated partners' investments in Countryside into 10 - year promissory notes, an economically distinct form of investment).

Particular attention should be paid to LLCs involving related parties, since one of the facts and circumstances that the IRS will scrutinize involves related parties. However, the regulations point out that all of the facts and circumstances must be considered in determining the validity of the transaction. No special weight should be given to the presence or absence of any particular factor.

Regs. Sec. 1. 704 - 3 (a)(10) provides that the anti - abuse regulations take into account the tax liabilities of both the members of the LLC and certain direct and indirect owners of those members. Regs. Sec. 1. 704 - 3 (a)(10)(ii) provides that indirect owners include any direct or indirect owner of a partnership, an LLC classified as a partnership or as an S corporation, an S corporation, or a controlled foreign corporation that is a member in the LLC. Also included are a direct or indirect beneficiary of a trust or estate that is a member in the LLC and any consolidated group of which the member in the LLC is a member.

Example. Application of the anti-abuse regulations: K , B , and J , all brothers, form the M LLC to operate a restaurant. The LLC is classified as a partnership. K , B , and J each contribute one - third of the LLC's capital. J has had some serious financial problems and has $500,000 of net operating losses (NOLs) that are about to expire. The LLC's operating agreement provides that all members are to receive a $35,000 guaranteed payment and that J is to then receive 80% of the net income or loss for managing the restaurant, with K and B each receiving 10%. The goal is to make the business profitable, then sell to a national chain. The profits on the sale will be split equally.

These LLC allocations may be challenged by the IRS. First, the allocations are suspect because the parties are related and most of the income is allocated to J , who is effectively exempt from tax by virtue of the large NOL. This substantially reduces the present value of the taxes due from what it would be if the profits were allocated equally. Additionally, the stated goal is to eventually sell the restaurant, at which time all of the parties will share the profit equally.

The IRS, by invoking the anti - abuse regulations, could reallocate the income to the members or treat J as an employee (or independent contractor) rather than a member.

Economic substance doctrine

The economic substance doctrine is a common law doctrine under which tax benefits related to a transaction are disallowed if the transaction does not have economic substance or lacks a business purpose. Although the doctrine originated in case law, Sec. 7701(o) codifies it. Sec. 6662 imposes an accuracy - related penalty on transactions that lack economic substance. The codified rules apply only to transactions to which the economic substance doctrine is "relevant." Sec. 7701(o)(5) provides that the determination of whether the doctrine is relevant to a transaction or series of transactions is made as if the Code section had never been enacted, in other words, under the old rules.

Sec. 7701(o)(1) provides that a transaction is treated as having economic substance only if (1) the transaction changes in a meaningful way the taxpayer's economic position beyond tax benefits (objective test) and (2) the taxpayer has a substantial nontax business purpose for entering into the transaction (subjective test). Changes in the taxpayer's federal and/or state and local taxes (including financial accounting benefits originating from a reduction of income taxes) are not considered meaningful and do not constitute a substantial purpose.

A transaction's potential for profit can be taken into account to determine its economic substance only if the present value of the reasonably expected pretax profit from the transaction is substantial in relation to the present value of the expected net tax benefits that would be allowed if the transaction were respected. Fees and other transaction expenses must be taken into account to determine pretax profits.

In Sala , 613 F.3d 1249 (10th Cir. 2010), which was decided soon after Sec. 7701(o) was enacted but does not mention that provision, the Tenth Circuit held that "an investment program that included an initial phase designed primarily to generate a tax loss so as to offset over $60 million in income [the taxpayer] earned during the 2000 tax year" lacked economic substance. The loss "was structured from the outset to be a complete fiction" because the transaction was designed to create a tax loss that would almost entirely offset the taxpayer's 2000 income "with little actual economic risk." Furthermore, the taxpayer was aware that the partnership would have to be liquidated by year end to generate a large enough tax loss to offset his income.

Observation : Sala is important because it is an appellate decision and because it addresses many of the issues underlying Sec. 7701(o). While the district court found the long and short options had a profit potential of $550,000 over a one - year period, the expected tax benefit was nearly $24 million, which "dwarf(ed) any potential gain from" the taxpayer's participation in the transaction. Furthermore, any economic benefit from participating in the transaction for a few weeks, and then liquidating the partnership by year end, was negligible in comparison to the $24 million tax benefit.

The economic substance doctrine has been used in several other cases to deny taxpayer losses. For example, in Fidelity International Currency Advisor A Fund LLC , 661 F.3d 667 (1st Cir. 2011), a transaction involving the contribution of offsetting options to a partnership, where the purchased option was treated as an asset and the sold option was not treated as a liability, was deemed to have no economic substance. Similarly, in Nevada Partners Fund, LLC , 720 F.3d 594 (5th Cir. 2013), the "sale" of suspended losses largely resulting from foreign currency transactions was deemed to have no economic substance. The court held that any profits the taxpayer would recognize from the series of transactions were insignificant in relation to the tax benefits generated.

The Third Circuit overturned a Tax Court decision that originally found economic substance in a transaction involving rehabilitation credits ( Historic Boardwalk Hall, LLC ,694 F.3d 425 (3d Cir. 2012)). The Tax Court determined that an LLC formed by New Jersey Sports and Exposition Authority (NJSEA) and an investment corporation allowed the corporate member to invest in the rehabilitation of a historic hall and obtain rehabilitation credits under Sec. 47. The Tax Court found economic substance to the transaction because the corporation did not become a member of the LLC solely for the tax credits but also to invest, with the realistic possibility of earning a profit. The corporate member's investment provided NJSEA with more money than it otherwise would have had; the development fee involved was a legitimate expense; and real risks were involved. The Tax Court also felt that the members had a common rehabilitation goal and would receive a net economic benefit if the project proved successful.

The appeals court, however, found that the overall facts and circumstances showed the intent of the transaction was the sale and purchase of rehabilitation tax credits. The corporation was not in substance a member because it had no downside risk of investment due to the operative agreements and associated tax benefit guaranty in place. Similarly, there was no upside to the corporation's investment. Consequently, in substance, the corporation was not a bona fide member because it had no meaningful stake in either the LLC's success or failure.

Notice 2010 - 62 states that the IRS will continue to rely on relevant case law in applying the two - prong test in Sec. 7701(o)(1) and in determining if the transaction's potential for profit is taken into account in determining economic substance. Notice 2014 - 58 provides additional guidance regarding the definition of "transaction" for applying the economic substance doctrine under Sec. 7701(o).

This case study has been adapted from PPC's Guide to Limited Liability Companies , 26th edition, by Michael E. Mares, Sara S. McMurrian, Stephen E. Pascarella II, and Gregory A. Porcaro, published by Thomson Reuters/Tax & Accounting, Carrollton, Texas, 2020 (800-431-9025; tax.thomsonreuters.com ).

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Home » LLC Interest Transfer » Assignment and Transfer of Membership Interest

Assignment and Transfer of Membership Interest

Jeramie Fortenberry, J.D., LL.M.

An LLC owner (called a member ) can transfer an ownership interest (called a membership interest ) by complying with the transfer provisions within the LLC’s operating agreement and state law. An assignment is one of the key documents a member must prepare to officially transfer a membership interest to a transferee.

What is the Purpose of an LLC Interest Assignment?

An assignment—sometimes titled assignment and transfer or assignment and assumption —serves as a written record of a member’s transfer of an LLC interest to a transferee. It is comparable to a deed that transfers real estate, but an assignment instead transfers to a new owner (the assignee or transferee ) some or all of an LLC member’s ownership rights in the company. Like some deeds, an assignment may include the member’s guarantee that he or she actually owns the interest being transferred and has the right to transfer it.

An LLC interest assignment must comply with any transfer terms, conditions, or restrictions in the company’s operating agreement. For example, an operating agreement may require other members’ consent to the transfer or limit the ownership rights that members are allowed to transfer.

An LLC owner may also prepare an assignment when offering an ownership interest as security for a loan. In that situation, the lender is the assignee and usually claims the interest only if the member fails to repay the loan. Assignments of LLC interests pledged as collateral are subject to additional laws and are not the focus of this article.

What LLC Interests Do Assignments Transfer?

A member who creates an LLC assignment customizes the assignment to the precise ownership interest the member wishes to transfer. LLC ownership interests can generally be separated into two basic interests:

• Economic rights. A member’s economic rights (sometimes called transferable interest ) include the member’s allocation of the LLC’s profits and losses and the member’s right to receive distributions from the company.
• Membership rights. A member’s membership rights—which are typically defined in the operating agreement—include the member’s right to vote on important matters, participate in the LLC’s internal affairs, and join in the management of the company (if it is member-managed).

An assignment can transfer the member’s economic rights (in whole or in part)—in which case the transferee receives a right to LLC distributions but no right to vote on LLC matters. Or, an assignment can transfer the member’s entire interest in the company. A transfer of all membership rights typically requires other members’ approval, formal admittance of the transferee as a new member, and a separate joinder agreement under which the new member accepts the LLC’s operating agreement.

What Information is Included in an LLC Membership Assignment?

An assignment must identify the transferor and the transferee, the company, and the specific interest being transferred. It should state whether the transfer applies to all or part of the transferor’s interest and whether the transferee will receive all membership rights or an economic interest only.

Assignments often also include:

• A reference to the operating agreement’s authorization of the transfer;
• A statement that the transfer has been approved under the operating agreement’s approval standard; and
• The transferor’s warranty that he or she actually owns the interest and that the assignment does not breach any other agreements.

An assignment must be signed by the member who makes the transfer and—depending on its terms—may also be signed by the transferee and on behalf of the LLC.

Assignment Of Membership Interest

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What is an assignment of membership interest.

An assignment of membership interest is a legal document that allows members of a Limited Liability Company (or LLC) to reassign their interest in the company to a different party. LLC laws are different from state to state, so what's required in an assignment of membership agreement changes.

Typically seen when a member wishes to exit a business, the assignment of membership interest agreement is used when transferring membership interest to another person. It is possible to transfer membership of an LLC to something like a revocable trust but requires those terms and conditions to be set in the assignment agreement.

Assignment Of Membership Interest Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.1.1.2 3 dex10112.htm ASSIGNMENT OF MEMBERSHIP INTEREST , Viewed October 13, 2021, View Source on SEC .

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Economic interest

30 CFR § 556.105

Scoping language

Collateral Assignment of an Entity Interest: Economic v. Governance Rights

Posted on September 26, 2012 by Bernstein-Burkley

Bernstein-Burkley, P.C.

In these difficult economic times, debtors have become more creative in proposing additional or substitute sources of collateral to secure a debt or obtain a forbearance or loan modification. As real estate values have plummeted, alternatives have become more attractive, including an assignment of the debtor’s interest in an operating entity with good cash flow.

However, the recent decision of the Pennsylvania Superior Court in Zokaites v. Pittsburgh Irish Pubs, LLC , 962 A.2d 1220 (Pa. Super. 2008), appeal denied 972 A.2d 523 (Pa. 2009), provides food for thought in terms of structuring and drafting a collateral assignment of an interest in a limited liability company or partnership. In Zokaites , a creditor was attempting to enforce its judgment lien by executing upon the debtor’s interest in two limited liability companies (“LLC”) that owned and operated several Pittsburgh area restaurants. The creditor sought a court order to compel the debtor to transfer its ownership interest in the LLCs so those interests could be sold at sheriff’s sale. After much procedural wrangling in both state and bankruptcy court, the case ended up in the Superior Court, which looked to Pennsylvania’s Limited Liability Company Law, 15 Pa.C.S. §8901 et seq . (“LLC Law”), for guidance.

The Superior Court focused on a provision in the LLC Law that prohibits a transferee of an LLC interest from becoming a member or participating in the company’s management without the approval of all other LLC members. The same provision, however, allows a transferee to receive the LLC member’s distributions or other return of capital contributions. Because of this protection of an LLC’s “close-knit structure,” the Superior Court decided that a judgment creditor can secure a debtor’s economic rights to distributions and return of contributions from the LLC, but cannot obtain the debtor’s governance rights to vote and participate in managing the LLC. The Superior Court equated this remedy of obtaining the economic rights in an LLC interest to the “charging order” that is permitted against a partnership interest under Pennsylvania’s Uniform Partnership and Limited Partnership Acts (“Partnership Acts”).

In light of the decision in Zokaites , lenders considering accepting a collateral assignment of an entity interest should keep a few things in mind for due diligence and drafting purposes. First, where a debtor has interests in multiple related entities, have the debtor provide an organizational chart. It is often easier to understand a complex organizational structure from a chart or “tree” than from a description. The chart should show the relationship among the entities and include the names of each entity and the percentage interest the debtor owns. For example, in a recent transaction where several guarantors were proposing to pledge their interests in a variety of LLCs and partnerships that in turn were the general and limited partners of other entities, an organizational chart prepared by the debtor was a crucial tool in pinpointing who owned what and in targeting the collateral.

Second, once you understand what entity interest(s) the debtor owns, it is essential to carefully review a copy of the organizational agreement and any amendments (the LLC Operating Agreement or the Partnership Agreement) for each entity. Key provisions include transfer or assignment rights or restrictions and default and dissolution provisions. If the organizational agreement expressly permits assignment, then the limitations under the LLC Law and the Partnership Acts do not apply 1 . Most likely, however, the LLC or partnership interest will not be assignable without the other members’ or partners’ consent. It is also important to understand whether an assignment will trigger an unwanted result such as a dissolution or default.

Third, once you know what is owned and can be pledged, draft the assignment to specifically identify the entity interest being pledged. Taking into account the ruling in Zokaites , where not all of the LLC members or partners are involved, a pledge of economic rights only is more likely to be enforceable than a collateral assignment that appears to transfer governance and other rights as well. In most instances, the cash flow from the right to receive distributions, profits, and return of capital is the true collateral anyway.

In describing complex or multiple entity interests or owners, consider attaching as exhibits the organizational chart and a table identifying each debtor, the entity, and the percentage interest owned. Include in the body of the assignment representations and warranties by the debtor confirming all of the information on the chart and table as true, complete and correct and that the debtor’s interest has not already been pledged or assigned.

Fourth, since the creditor will not have governance rights, the pledge agreement should also contain covenants to protect the creditor’s right to receive distributions. Such covenants would include prohibiting the debtor from voting to amend the Operating or Partnership Agreement or to dissolve the entity. Another useful provision would be the debtor’s authorization for the LLC or partnership and its officers to recognize and give effect to the collateral assignment by paying distributions directly to the creditor or lender upon demand. Finally, when the assignment is being made by a married individual, if possible have the spouse join in to waive any marital or spousal interest.

Assignment of a debtor’s interest in an LLC or partnership can be a valuable and useful form of collateral. But the creditor should follow the money and remain mindful of the Zokaites decision by taking a pledge of the economic rights and leaving the governance rights alone, unless all of the entity owners consent.

1. Similar to the LLC Law, the Partnership Acts contain provisions that, unless otherwise agreed, the assignee of a partner’s interest does not become a partner or share in partnership liability and cannot exercise a partner’s management, inspection of records, or accounting rights, but has the right to profits. 15 Pa.C.S. §8344(a) and 15 Pa.C.S. §8562(a)(2)and (c).

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2010 Georgia Code TITLE 14 - CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS CHAPTER 11 - LIMITED LIABILITY COMPANIES ARTICLE 5 - LIMITED LIABILITY COMPANY INTERESTS; ADMISSION OF MEMBERS § 14-11-502 - Assignment of limited liability company interest

Disclaimer: These codes may not be the most recent version. Georgia may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

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Assignments, Disclaimers and Powers of Appointment

          Assignments, Disclaimers and Powers of Appointment can alter the distribution of a decedent’s estate.    

          First what is and who can make an assignment? A person who has a vested — legally enforceable — interest in a decedent’s estate can “assign” – i.e., transfer – part or all of their interest to another. Generally, an inheritance vests upon the decedent’s death.  An assignment is a gift by the assignor making the assignment to the assignee receiving the assigned interest.    Assignments create tax issues for both the assignor and assignee.   

          For example, consider an unmarried father who dies intestate — without a will or trust – and is survived by a son and a daughter — his heirs.  Prior to settling dad’s estate, the son decides to give his one-half share to his sister and signs and notarizes an assignment of inheritance rights.  The assignment is then filed with the Court.  Dad’s estate, less expenses and debts, is distributed entirely to the daughter. 

          If an interest in real property inherited from a parent is assigned then the parent child exclusion from reassessment — for local real property taxes — only applies to the interest(s) belonging to the child(ren) who do not assign their interest(s).  There is no reassessment exclusion for any transfers between siblings.

          Assignments, however, almost never apply to a beneficiary’s interests in a trust.  Usually, a trust prohibits beneficiaries from assigning their interest in the trust before distribution.  The anti-assignment provision protects undistributed trust assets from claims by a beneficiary’s creditors. 

          Next, disclaimers are used when a beneficiary, or heir, refuses to accept a gift or inheritance.  You cannot force someone to receive a gift or an inheritance.  To be valid disclaimers must satisfy the following requirements: be unconditional, be in writing, and be timely (i.e., generally, within nine months of the transfer), and, when real property is involved, also be filed with the county recorder where the real property lies.  Unlike assignments, the person disclaiming their interest cannot say who receives the disclaimed interest.  A disclaimer is not a gift by the person disclaiming.  Lastly, one cannot have accepted any benefits from the property being disclaimed, such as the income from an income producing asset. 

          The person disclaiming their gift or inheritance is treated as if they had predeceased the person who made the gift.  We see who is then entitled to inherit. 

          For example, a decedent’s trust leaves a share of the decedent’s trust estate to a named beneficiary and otherwise, if he does not survive to inherit, to the beneficiary’s descendants by right of representation.  The beneficiary survives and timely disclaims.  The beneficiary’s living descendants would then inherit by right of representation. 

          Unlike assignments and disclaimers, powers of appointment are created within a person’s estate planning, e.g., a trust or will, for future use.  A power of appointment allows the power holder to say who receives a gift/distribution from a trust or an estate.  The power of appointment is either a limited power that allows gifting to certain persons or is a general power that allows gifting to anyone at all, including the power holder, the power holder’s estate and the power holder’s creditors.  Powers of appointment are used for a variety of estate planning reasons. 

          For example, a husband’s and wife’s joint estate planning may give the spouse who survives a limited power of appointment over the deceased spouse’s separate trust estate.  The limited power of appointment might allow the deceased spouse’s estate to be divided equally or unequally amongst the deceased spouse’s children as the surviving spouse sees fit after the deceased spouse’s death.

          Anyone who wants to proceed with making an assignment, a disclaimer or exercise of a power of appointment should consult a qualified attorney.  There are tax and other issues to discuss and drafting requirements to these legal instruments that benefit from the expertise of a qualified attorney. 

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• Study protocol
• Open access
• Published: 29 April 2024

Miracle friends and miracle money in California: a mixed-methods experiment of social support and guaranteed income for people experiencing homelessness

• Benjamin F. Henwood   ORCID: orcid.org/0000-0001-8346-3569 1 ,
• Bo-Kyung Elizabeth Kim 1 ,
• Amy Stein 1 ,
• Gisele Corletto 1 ,
• Himal Suthar 2 ,
• Kevin F. Adler 3 ,
• Madeline Mazzocchi 3 ,
• Julia Ip 1 &
• Deborah K. Padgett 4  

Trials volume  25 , Article number:  290 ( 2024 ) Cite this article

Metrics details

This paper describes the protocols for a randomized controlled trial using a parallel-group trial design that includes an intervention designed to address social isolation and loneliness among people experiencing homelessness known as Miracle Friends and an intervention that combines Miracles Friends with an economic poverty-reduction intervention known as Miracle Money. Miracle Friends pairs an unhoused person with a volunteer “phone buddy.” Miracle Money provides guaranteed basic income of $750 per month for 1 year to Miracle Friends participants. The study will examine whether either intervention reduces social isolation or homelessness compared to a waitlist control group.

Unhoused individuals who expressed interest in the Miracle Friends program were randomized to either receive the intervention or be placed on a waitlist for Miracle Friends. Among those randomized to receive the Miracle Friends intervention, randomization also determined whether they would be offered Miracle Money. The possibility of receiving basic income was only disclosed to study participants if they were randomly selected and participated in the Miracle Friends program. All study participants, regardless of assignment, were surveyed every 3 months for 15 months.

Of 760 unhoused individuals enrolled in the study, 256 were randomized to receive Miracle Friends, 267 were randomized to receive Miracle Money, and 237 were randomized to the waitlist control group. In the two intervention groups, 360 of 523 unhoused individuals were initially matched to a phone buddy. Of the 191 study participants in the Miracle Money group who had been initially matched to a volunteer phone buddy, 103 were deemed to be participating in the program and began receiving monthly income.

This randomized controlled trial will determine whether innovative interventions involving volunteer phone support and basic income reduce social isolation and improve housing outcomes for people experiencing homelessness. Although we enrolled unhoused individuals who initially expressed interest in the Miracle Friends program, the study team could not reach approximately 30% of individuals referred to the study. This may reflect the general lack of stability in the lives of people who are unhoused or limitations in the appeal of such a program to some portion of the unhoused population.

Trial registration

ClinicalTrials.gov NCT05408884 (first submitted on May 26, 2022).

Peer Review reports

People experiencing homelessness (PEH) suffer from extreme health disparities including high rates of disease (e.g., obesity, cancer, and depression) [ 1 , 2 , 3 , 4 , 5 , 6 , 7 ], early onset of geriatric conditions, and decades-early mortality [ 8 , 9 , 10 , 11 , 12 , 13 , 14 ]. More apparent drivers of these health disparities that are a direct result of homelessness include difficulty accessing quality health care and maintaining medication adherence [ 15 , 16 , 17 , 18 ], increased exposure to victimization [ 19 ], and accidents and extreme weather [ 20 , 21 ]. Less often discussed is the role of social exclusion, isolation, and loneliness, despite the high prevalence of these factors among PEH [ 22 , 23 ] and significant evidence linking them to increased morbidity and mortality [ 1 ]. This is particularly noteworthy because evidence-based interventions, most notably Housing First, can effectively address homelessness but do not necessarily increase community integration or reduce social isolation and loneliness [ 24 , 25 , 26 , 27 ]. This may account for why research on supportive housing programs that successfully end homelessness has yet to document a significant reduction in health disparities [ 28 ].

Given that research has established a clear causal link between social isolation and loneliness and health outcomes [ 29 ], interventions that focus on social connectedness could be considered to reduce health disparities among PEH [ 30 ]. Unfortunately, although there have been various efforts to design interventions to address social isolation and loneliness more generally, there is limited evidence of their effectiveness using rigorous designs such as randomized controlled trials [ 31 , 32 ]. Of course, it is unlikely that focusing only on social isolation and loneliness without addressing other social determinants of health will significantly improve health outcomes of PEH [ 33 ]. In short, interventions that address both economic and social poverty (i.e., loneliness and social isolation) are likely needed to reduce health disparities among PEH.

This paper describes the protocols for a randomized controlled trial of an intervention initially designed to address social isolation and loneliness among PEH and subsequently paired with an economic poverty-reduction intervention. The program that delivers these interventions is a nonprofit organization known as Miracle Messages, whose mission is to “end relational poverty on the streets and, in the process, inspire people everywhere to embrace their homeless neighbors not as problems to be solved, but as people to be loved” [ 34 ]. One intervention that this program implements is known as Miracle Friends, in which an unhoused person is paired with a volunteer “phone buddy” who provides social support. Miracle Friends is not intended to replace other social services and volunteers are not expected to have any specific training to provide counseling or case management services. Instead, the goal is for volunteers to develop an informal friendship that provides the unhoused person with someone to talk to.

Another intervention that the program has recently added is known as Miracle Money, in which unhoused individuals who are participating in the Miracle Friends receive guaranteed basic income. Guaranteed basic income, sometimes referred to as a cash transfer program, has been increasingly adopted globally as a means to reduce poverty and has been shown to improve outcomes including education, employment, and health [ 35 ]. During the coronavirus pandemic, the U.S. federal government provided an unprecedented form of basic income to many Americans by funding more than $476 million in cash transfer payments [ 36 , 37 ]. Although basic income programs can vary in terms of program design (e.g., who qualifies, how funds are distributed, amount and frequency of income distribution), pilot programs in the United States have mainly targeted safety-net populations in large cities including Los Angeles, Chicago, New York, Philadelphia, and Washington, DC [ 38 ]. Although many of these cities have large homeless populations [ 39 ], few basic income programs have been designed for PEH [ 40 ]. Some of the measures for the current study were borrowed from an ongoing randomized controlled trial of a 12-month program providing unconditional cash transfers to unhoused people living Colorado known as the Denver Basic Income Project [ 41 , 42 ].

Interventions: miracle friends and miracle money

In 2020, a Miracle Money proof-of-concept pilot was conducted in which nine PEH who were participating in Miracle Friends received $500 a month for 6 months. At the end of the pilot, six participants had secured housing and most reported improved social connections and less psychological distress [ 41 ]. Although participants in the pilot reported that most of their funds were used on food (30.6%) and rent (29.9%), they also reported spending funds on individualized needs that could not have been predicted, such as getting a service dog to help with anxiety, obtaining clean clothes to wear at a mosque, supporting family members, and donating to charity [ 41 ]. Importantly, many participants reported that the Miracle Friends phone buddy program was a critical component of the success or improvement that they experienced from receiving basic income [ 41 ].

To better understand the impact of the Miracle Friends intervention and how adding basic income influences outcomes, the Miracle Messages nonprofit and the University of Southern California Suzanne Dworak-Peck School of Social Work established a community–academic partnership in 2022 to design and conduct a randomized controlled trial of these interventions. Through private philanthropy, funding was secured to provide basic income to as many of 105 individuals for 1 year. The study takes place in the Los Angeles and San Francisco Bay areas of California, which have high rates of homelessness. California accounts for 30% of all people in the USA experiencing homelessness, including half ( n  = 115,491) of all unsheltered people, many of whom reside in the Los Angeles and San Francisco Bay areas [ 39 ]. In these urban regions and nationally, African Americans are overrepresented in the homeless population. Nationally, African Americans comprise 40% of the homeless population while representing only 13% of the general population [ 39 ]. This is an important factor to consider for this study, because although Whites are more likely to become homeless due to individual risk factors such as health impairments or disabilities, research suggests that African Americans are more likely to become homeless due to lack of income and social capital [ 43 ], both of which are target outcomes for the Miracle Money intervention [ 44 ]. However, it is unclear whether increased income and social support can overcome other forms of discrimination experienced by African Americans that may be required to exit homelessness [ 45 ].

The overarching research questions that this study seeks to answer are: (1) Is the Miracle Friends intervention associated with reduced social isolation and increased social support? (2) Is the Miracle Friends intervention associated with improved housing outcomes? (3) Does the addition of basic income through the Miracle Money intervention improve these outcomes of interest? (4) Are there differences in outcomes based on race?

Design overview

Miracle Messages, the nonprofit that delivers the Miracle Friends and Miracle Money interventions, is headquartered in the San Francisco Bay Area but expanded to have staff members in Los Angeles for this study. Through partnerships with homeless service agencies or direct street outreach, Miracle Messages staff members engaged unhoused individuals to explain the Miracle Friends intervention, which requires having a phone, and signed up anyone who expressed interest in a phone buddy. Those who signed up also learned about a study to evaluate the Miracle Friends intervention, and those who expressed interest were referred to a study team affiliated with the University of Southern California. For those who agreed and provided written informed consent to participate in the study, a random number generator was used to determine sequentially whether a study participant would be offered the Miracle Friends intervention or put on a waitlist. Participants were told that they had a two-thirds chance to be offered Miracle Friends but were not told that approximately half of those offered Miracle Friends would be assigned to a third arm of the study that could receive basic income. For this group, receiving basic income through Miracle Money was contingent on participating in Miracle Friends. Figure  1 depicts how participants were randomized using a parallel-group trial design to one of three groups with a 1:1:1 allocation ratio: (a) those offered Miracle Friends only; (b) those who would be offered Miracle Money if they participated in Miracle Friends; and (c) those on a waitlist for Miracle Friends. Recruitment continued until at least 100 people began receiving Miracle Money.

Randomized controlled trial design

Study team members interacting with participants for recruitment purposes were informed by a single study administrator via telephone just prior to enrollment about whether a participant had been randomized to receive Miracle Friends or put on a waitlist, but were blinded to whether the Miracle Friend assignment was part of the Miracle Money condition. Once enrolled, the single study administrator provided the Miracle Messages staff with the group assignment of each participant to determine whether Miracle Friends should be offered. For those assigned to Miracle Money, the possibility of receiving guaranteed income was only disclosed after it had been determined that they were participating in the Miracle Friends intervention.

Nondisclosure of the Miracle Money condition, a form of deception, was deemed necessary to avoid (a) unduly influencing people to participate in the research and (b) biasing results such that people might have engaged in the Miracle Friends program only because they were interested in guaranteed income. Because revealing that a participant may have been eligible for but was not offered basic income could potentially cause more distress than the deception, the study team will not debrief participants at the conclusion of the study about the complete study design, which is consistent with the Code of Federal Regulations on the protection of human subjects [ 46 ].

Regardless of group assignment, all participants identified by a unique study identification number to preserve confidentiality have been asked to complete a baseline survey and five subsequent quarterly surveys; participants will receive a $30 gift card incentive for each completed survey. Qualitative interviews with a subset of 20 participants receiving basic income have and will be conducted shortly after receipt of the first of 12 monthly payments, with another follow-up qualitative interview scheduled around the time of the last payment. A single qualitative interview will be conducted with 20 volunteers serving as a phone buddy for at least 6 months to understand their experience of delivering the Miracle Friends intervention. Participants will receive a $30 incentive at the end of each qualitative interview. This human subjects’ research is being performed in accordance with the Declaration of Helsinki with protocols approved by the first author’s institutional review board. Reporting of study protocols follows the SPIRIT guidelines [ 47 ], which include a schedule of enrollment, interventions, and assessments, as depicted in Fig.  2 . The SPIRIT checklist for Trails can be found in the Supplementary materials .

Schedule of enrollment, interventions, and assessments

Interventions

Miracle friends.

Miracle Messages program staff members have recruited volunteers who want to serve as a phone buddy and unhoused individuals who expressed an interest in being matched with a phone buddy. Recruitment of volunteers has occurred primarily through people who learned about the program through media coverage, word of mouth, social media, or internet searches about helping PEH, with most volunteers signing up on the Miracle Messages website. Volunteers are required to complete an application listing any preferences for a friend (e.g., gender, language, shared interests, text or calls preferred) and attend a 30-min training call offered once a week synchronously. A recording of the training call is available as needed to those with significant scheduling conflicts. Volunteers receive a program handbook that outlines expectations for logging into an online platform to record any contact or attempted contact with an unhoused friend. After completing a waiver of liability, volunteers receive a phone number through Dialpad or similar service (which allows the volunteers to avoid divulging their personal phone numbers if they wish) and are subsequently matched with an unhoused friend, usually in a few weeks. Weekly support calls are offered to all volunteers, in addition to one-on-one support provided upon request based on completing the contact logs. Currently, there are approximately 300 Miracle Friend volunteers.

Recruitment of unhoused individuals has happened primarily through (a) site visits at local partner sites, including shelters, transitional housing facilities (e.g., tiny homes), converted hotels or motels for unhoused individuals, etc.; (b) referrals from caseworkers and social workers at these partner sites; and (c) limited direct outreach on the streets in and around partner sites or at events designed to address the needs of PEH (e.g., food pantries, homeless connect events). Miracle Friends program staff members explain the intervention and sign up anyone who expresses an interest in a phone buddy. Like with the volunteers, unhoused participants are also asked to complete an application listing any preferences for a friend (e.g., gender, language, shared interests, text or calls preferred).

Matching of unhoused individuals and volunteers has been primarily based on preferences and shared interests, as indicated on the enrollment application. Once a match is determined, volunteers receive the phone number of their assigned unhoused friend and are asked to make contact as soon as possible. The program has no time limit, and the development of friendships is expected to occur naturally over time and be unique to each matched pair. Communication is bidirectional in that both participants can call or text each other. Volunteers are encouraged to provide a friendly voice and be a compassionate listener without judgment; there is no expectation of formal counseling or case management. If a lack of fit occurs or communication is not maintained between the two individuals, the program offers to rematch the unhoused individual, volunteer, or both. If a volunteer or Miracle Messages staff members cannot contact an unhoused person after five attempts by the volunteer and one attempt by the staff, the person is removed from the list of people needing to be matched—effectively representing a discharge from the program. However, participants can reenroll at any time. Once matched, volunteers are expected to attempt weekly phone voice or text contact. Volunteers log their efforts on the program’s online platform after each attempt, helping the program monitor the progression of friendships and address any issues. Based on volunteer responses, the Miracle Friends program can provide referrals to the unhoused person if there is a more urgent need or contact a formal service provider if authorized by the unhoused individual.

Miracle money

Whereas the Miracle Money proof-of-concept provided $500 for 6 consecutive months, for this study, funds were raised so that Miracle Messages could provide up to 110 individuals with $750 per month for 12 months. This was based on pilot work that suggested that $500 per month meaningfully changed lives [ 41 ] but recognition that a living wage in these cities would be much higher [ 48 ]. As noted, Miracle Money is not advertised to those interested in the Miracle Friends intervention; unhoused individuals are only notified about the possibility of receiving basic income if they are randomized to the Miracle Money condition and participate in the Miracle Friends interventions. Although participation was defined as having had at least two contacts with a matched volunteer in a 1-month period, at the outset of the study there were efforts to ensure that the two contacts could be characterized as “meaningful” based on volunteer feedback to help ensure that the matching process would result in a prolonged friendship or relationship. Yet because many of the initial contacts could not be confirmed to be meaningful, Miracle Messages increasingly came to accept any type of contact with volunteers as meeting the criteria of Miracle Friend participation that would then allow participants to start receiving Miracle Money.

Volunteers are notified when the person with whom they have been matched becomes eligible for Miracle Money so that the volunteer can be present during the phone call in which the study participant is offered Miracle Money. Those who qualify and decide to move forward with receiving basic income payments are asked to complete an application for a cash transfer technology company known as AidKit, which has been contracted to process monthly payments sent via a debit card or direct deposit. Although we do not expect many people to turn down Miracle Money, we envision that some may decide against receiving income payments based on how it may affect other benefits that depend on income (e.g., Supplemental Security Income, Supplemental Nutrition Assistance Program), although the intent of guaranteed basic income is to supplement rather than replace existing resources. When participants are first offered Miracle Money, the Miracle Messages staff discusses benefits and encourages participants to discuss the topic with a case manager; referrals to financial coaching are also offered. Participants are told that they can use the money in any way they choose but that the program requests the money not be used for any illicit purposes.

Recruitment and enrollment

As noted, study recruitment has occurred via the Miracle Messages program, which notifies the study team about unhoused individuals interested in participating in an evaluation of the Miracle Friends intervention. This has occurred in person when the study team accompanied Miracle Messages staff members to outreach events or through a shared online referral document that provided the study team with the contact information of individuals interested in Miracle Friends and the evaluation study. Once the study team confirmed that an individual met the inclusion criteria—which included (a) being 18 years old or older; (b) speaking English or Spanish; (c) currently experiencing homelessness based on definition from the U.S. Department of Housing and Urban Development; and (d) expressed interest in the Miracle Friends phone buddy intervention—enrollment into the study occurred in person with signed informed consent or over the phone with informed consent, requiring an electronic signature completed via email using the REDCap platform [ 49 , 50 ]. The informed consent process ensures that individuals understand that participation in the study may result in being assigned to a waitlist where they would be ineligible to participate in Miracle Friends for 15 months unless they withdrew from the study. Once enrolled in the study, participants complete a baseline survey and learn whether they have been randomly assigned to the waitlist or Miracle Friends. Surveyors are blinded to whether a participant is assigned to the group that will be offered Miracle Friends only or the group that will be offered Miracle Money if they participate in Miracle Friends. The Miracle Messages administrative staff is notified to which of the three groups a participant has been assigned to determine whether someone should be matched to a phone buddy and monitor which individuals become eligible for Miracle Money based on participation in Miracle Friends. Study recruitment continued until at least 100 people started receiving Miracle Money.

Quantitative data collection procedures

Upon enrollment in the study and regardless of group assignment, the participants complete a baseline survey that takes approximately 45 min and includes questions about demographic characteristics, homelessness history, physical and mental health status, health service utilization, employment, substance use, socioeconomic status, and income. Participants are also asked to provide an email address and collateral contact information for one or more people to ensure that the study team can reconnect with them when it is time to complete a shorter survey five more times, one every 3 months (i.e., quarterly) until 15 months. The quarterly survey asks about similar topics and takes approximately 25 min. Surveys can be completed in person or over the phone, with responses recorded by a surveyor directly into the REDCap data management platform [ 49 , 50 ] that is also used to support data visualization to monitor data quality and study retention. Upon request, participants also receive a link to self-administer the survey in English or Spanish. Table 1 describes all study measures.

At the end of each survey, participants are asked two open-ended questions: (1) Looking back over the last 3 months, what do you think was the most significant change to your quality of life? (2) Tell me in a sentence or two, what are your most important goals in life right now? If the survey is administered by a surveyor, responses are entered verbatim as much as possible; if self-administered, participants enter their responses directly. All surveyors complete a training on best practices for trauma-informed interviewing.

Qualitative data collection procedures

Miracle money recipients.

Qualitative interviews will be conducted in English with a subset of 20 participants who receive basic income—shortly after receipt of the first of 12 monthly payments and again around the time of their last payment. During the first quarterly survey, participants who received monthly income will be purposively sampled and asked if they would be interested in participating in an additional in-depth qualitative interview to learn more about their experience with the program. Maximum variation sampling will be used to ensure differences in race, ethnicity, and gender in our qualitative subsample. Those who are interested and agree to participate will be contacted by a research team member who has been trained in conducting qualitative interviews. Interviewers will schedule a convenient time and place to meet unless participants request a phone interview. Once an addendum consent is completed, semistructured interviews will last between 30 and 60 min and include questions about how participants view their lives, general experiences with the Miracle Friends program, and the Miracle Money program, including how they use the money and any difference it has made in their lives. Interviews will be audio recorded and transcribed verbatim.

Miracle friend volunteers

A single qualitative interview will be conducted with 20 volunteers who served as a phone buddy for at least 6 months to understand their experience of Miracle Friends. Any volunteer who has been engaged in the intervention for at least 6 months will receive an email from the Miracle Messages program that informs them of the study and refers them to the study team if they are interested in speaking about their personal experience with the program. Thirty-three volunteers have indicated that they would be interested; 20 have been purposively sampled to include volunteers who had participants in the Miracle Friends program and Miracle Money program. Phone or videoconferencing interviews have been conducted using a semistructured interview guide that included questions about how and why participants became a volunteer, experiences with the program, and whether they felt that they had an impact on their unhoused friend or if their friend has affected their life. Questions about how the program could be improved were also included. Interviews have typically lasted between 25 and 35 min and were audio recorded and transcribed verbatim. Written informed consent has been waived by the institutional review board for volunteer interviews.

Quantitative data analysis

Social isolation outcomes.

To evaluate the efficacy of the Miracle Friends intervention on social support, psychological distress, and loneliness, we will use responses to the Oslo Support Scale [ 53 ], Kessler Psychological Distress Scale [ 55 ], and UCLA Loneliness Scale [ 52 ], respectively, at the final survey (Quarter 5). Each measure will first be summed to develop a total score, then dichotomized based on cutoffs for each measure based in the literature—i.e., poor social support will be coded as 1 if the Oslo Support Scale sum score is less than 9 (indicative of poor social support) and 0 otherwise; psychological distress will be coded as 1 if the Kessler Psychological Distress Scale sum score is greater than 25 (indicative of high psychological distress) and 0 otherwise; and loneliness will be coded as 1 if the UCLA Loneliness Scale sum score is greater than or equal to 6 (indicative of high loneliness) and 0 otherwise. Each dichotomized score will be modeled as a function of treatment group (1 = Miracle Friends or Miracle Money group members who participated in at least one phone buddy intervention, 0 = waitlist group); covariates including demographic characteristics, physical and mental health, and substance use; and a random intercept for city in random intercept logistic regression models.

Housing outcomes

The association of Miracle Friends with housing outcomes will be evaluated using logistic regression with a random intercept, modeling the dichotomized outcome of exited homelessness (1 = individual responded “My own apartment or home” or “Someone else’s apartment or home,” 0 = otherwise) as a function of treatment (1 = Miracle Friends group members who participated in at least one phone buddy intervention, 0 = waitlist group), with the same covariates and random intercept.

Differences in treatment effect based on race

To evaluate if outcomes differ by race, all models will be run with the addition of an interaction between race and treatment.

Statistical power

To reach a target goal of 105 participants receiving basic income through Miracle Money, recruitment efforts have yielded more than 200 individuals in each treatment group. Assuming that each arm will have at least 105 participants, our study can detect the hypothesized 50% difference in proportion of people exiting homelessness at Quarter 5 between the Miracle Money and waitlist group (assuming 60% of the Miracle Money group exits homelessness and 10% of the waitlist group exits homelessness) using a p -value threshold of 0.05 with power exceeding 95%. When comparing the Miracle Friends group to the waitlist group, our study can detect the hypothesized 15% difference in proportion of people exiting homelessness at Quarter 5 between the Miracle Friends and waitlist group (assuming 25% of the Miracle Money group exits homelessness and 10% of the waitlist group exits homelessness) using a p -value threshold of 0.05 with power exceeding 60%. Differences in proportions of the social isolation outcomes will be detected at powers identical to the housing outcome, assuming identical differences in proportions and p -values. Regarding the effect modification of treatment by race in exiting homelessness, our study will be able to detect a difference in proportion of groups exiting homelessness of 35% with power exceeding 20%. Main effect calculations were done on unadjusted models using the WebPower R package, and the effect modification power calculations were performed via simulation.

Qualitative data analysis

In keeping with qualitative analytic procedures, each interview has been transcribed verbatim by the research team member who conducted the interview. Transcripts have been distributed and shared with the larger team for review. A team approach will occur in data analyses, where instruction in coding will be supplemented with test cases in which two researchers read and code a transcript and then meet to discuss discrepancies and arrive at consensus. Given the focused nature of the inquiry, the resulting codebook will be a reflection of the questions that were asked. At the same time, interviewees often have shared greater depth or alternative descriptions that will “earn their way” into the analyses and interpretation [ 56 ]. In the final stage of analysis, broader interpretation will be sought to identify recurrent themes agreed on by consensus and recorded as memos.

Between May 2022 and July 2023, when recruitment ended, the Miracle Friends program referred 1087 unhoused individuals to the study team and 760 enrolled in the study. As depicted in Fig.  3 , among those who enrolled, 256 were randomized to Miracle Friends only, 267 were randomized to Miracle Money, and 233 were randomized to the Miracle Friends waitlist control group. Thus far, 360 unhoused individuals have been matched to a phone buddy from across the two intervention groups (169 in Miracle Friends only and 191 in the Miracle Money group), with 56 people still not matched. We have been unable to contact 103 people after they were assigned to a treatment group. Of the 191 study participants in the Miracle Money group who were initially matched to a volunteer phone buddy, 103 were verified as participating in Miracle Friends and began receiving monthly income and 70 people were not selected because they were not participating in Miracle Friends. One person withdrew from the study and we were unable to contact 17 others in the Miracle Money group who had been initially matched with a Miracle Friend.

Consort diagram

This randomized controlled trial was designed to evaluate the effectiveness of the Miracle Friends and Miracle Money interventions as compared a control group that received neither intervention. Although 760 unhoused individuals have enrolled in the study, the study team has been unable to contact more than 30% of the individuals who initially expressed an interest in the Miracle Friends phone buddy program and were referred to the study. This may reflect the general lack of stability in the lives of PEH or limitations in the appeal of such a program to some portion of the unhoused population. Future analysis will compare those who engaged in the intervention versus those who did not to provide some insight into potential differences. It is also unclear how increased transparency about the prospect of basic income would have changed engagement and retention in the program or study. Another factor that may have contributed to attrition is a delay in the matching process that sometimes occurred when not enough volunteers were available to meet the demand, which could have discouraged unhoused people who signed up for the program from participating. Future analyses will attempt to understand who ended up volunteering for this program and why they volunteered, as well as how long it takes to match participants and under what circumstances a match is successful.

Trial status

This version of the study protocols (2.1) includes two amendments to the initial protocols approved by the institutional review board on April 21, 2022. Recruitment began on May 30, 2022, and ended July 10, 2023. Final enrollment into the Miracle Money intervention was delayed until August 2023 to give study participants an opportunity to meet the criterion for receiving basic income (i.e., participating in the Miracle Friends program).

Limitations

This study is unique in that it represents the first known experiment of interventions that provide social support and guaranteed income for PEH. Challenges include study retention, given that participants have been recruited while experiencing homelessness, either sheltered or unsheltered. There may also be differential retention rates because people receiving basic income may be more likely to complete follow-up surveys as compared to the waitlist or Miracle Friends only groups. The likelihood that unhoused participants continue with the program may depend on the type of volunteer match they receive, including concordance between the two parties based on factors such as race, ethnicity, age, or gender, which this study will not examine because we have not captured dyadic information. The study also will not follow people after the basic income funding has ended. It should also be noted that this intervention primarily focused on individuals who had a cell phone, which research suggests is much of the homeless population [ 57 ].

The Miracle Friends and Miracle Money programs in California offer an innovative approach to addressing the needs of PEH. This randomized controlled trial will help determine whether these programs reduce social isolation and loneliness and lead to better housing outcomes. The results will likely be of interest to policymakers, who have struggled to find appropriate system-based responses to the growing problem of homelessness in California and elsewhere. Results of the trial will be shared through peer-reviewed publications and other public dissemination efforts (e.g., policy briefs and presentations).

Protocol version

2.1 on 3/24/24.

Trial oversight

This study is being conducted at the Center for Homelessness, Housing, and Health Equity Research at the University of Southern California (USC) Suzanne Dworak-Peck School of Social Work and in collaboration with Miracle Messages, which is a U.S. 501(c)(3) nonprofit organization, EIN# 82–4,179,328. Throughout study recruitment, these two organizations met weekly since Miracle Messages identified potential candidates for the study and referred people to the study team at USC, which enrolled and obtained informed consent from participants. All interventions were implemented by Miracle Messages and all data collection was conducted by USC. Ethical oversight of the study was done through the USC Human Research Protection Program. USC research team members will continue to meet weekly throughout the study with oversight provided by the director of the Center for Homelessness, Housing and Health Equity Research.

Trial results

Results of this trial will be posted on ClinicalTrials.gov and disseminated through peer-reviewed publications.

Availability of data and materials

All data from this research will be deidentified and made available in a public data repository (TBD).

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Acknowledgements

In addition to our study participants, we would like to thank those who helped implement the programs at Miracle Messages, including Colette Lay, Jenni Taylor, John Ma, Nelly Stastny, Lindsay Pfeiffer, Rosalie Silva, and Ashley Dockendorf. We would also like to thank those who participated on the research team, including Steve Quezada, Larry Posey, Erick Guadron, Jeffrey Levita, Safina Sahil Suratwala, Elene Trujillo, Norma Guzman Hernandez, Raquel Flores, Cinthia Lazcano, Victoria Carretero, Vaibhav Vijaykar, Niki Esfandiari, Enehi Ameh, Allan Sandoval, Julia Barton, Sara Semborski, Tyler Martin, Keenan Leary, Jefferson Hall, Corinne Zachary, and Olga Koumoundouros.

Funding for this study was provided by Google.org and the Homeless Policy Research Institute, along with individuals Kimberly Lynch and Scott Layne. These funding sources had no role in the design of this study and will not have any role during its execution, analyses, interpretation of the data, or decision to submit results.

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Suzanne Dworak-Peck School of Social Work, University of Southern California, 669 W. 34th Street, Montgomery Ross Fisher Building, Los Angeles, CA, 90089, USA

Benjamin F. Henwood, Bo-Kyung Elizabeth Kim, Amy Stein, Gisele Corletto & Julia Ip

Department of Population and Public Health Sciences, Keck School of Medicine, University of Southern California, Los Angeles, CA, USA

Himal Suthar

Miracle Messages, San Francisco, USA

Kevin F. Adler & Madeline Mazzocchi

Silver School of Social Work, New York University, New York, USA

Deborah K. Padgett

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Authorship was based on guidelines set forth by the U.S. National Institutes of Health. Henwood and Adler initially designed the study that secured funding. Henwood, Kim, Stein, Corletto, Suthar, Adler, Mazzocchi, Ip, and Padgett all contributed to data collection and study implementation. Henwood, Adler, and Padgett initially drafted the manuscript and all authors critically reviewed and provided edits to revise the manuscript. Henwood, Stein, Corletto, and Suthar had full access to all recruitment data in the study and take responsibility for the integrity of the data and the accuracy of the data presentation.

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This human subjects research has been performed in accordance with the Declaration of Helsinki and approved by the University of Southern California’s Institutional Review Board (UP-22–00242). All human subject participants provided informed consent.

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Kevin F. Adler is the founder and CEO of Miracle Messages; he has not had access to study data.

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Henwood, B.F., Kim, BK.E., Stein, A. et al. Miracle friends and miracle money in California: a mixed-methods experiment of social support and guaranteed income for people experiencing homelessness. Trials 25 , 290 (2024). https://doi.org/10.1186/s13063-024-08109-6

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Received : 25 August 2023

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Published : 29 April 2024

DOI : https://doi.org/10.1186/s13063-024-08109-6

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U.S. Department of the Treasury

Economy statement by eric van nostrand, performing duties of assistant secretary for economic policy for the treasury borrowing advisory committee, introduction.

Over the past three months, incoming U.S. economic data continue to show robust growth in the labor market, household consumption, and business investment, even as inflation remains well below its peak.  Although headline GDP growth slowed more than expected in the first quarter, underlying demand from households and businesses remained remarkably strong.  Moreover, the pace of job growth picked up in early 2024, prime-age labor supply improved, and the unemployment rate continued to remain low.  It is likely that the health of the labor market is buttressing private demand and, with it, economic growth in 2024.

Inflation has been slower to come down than expected after the rapid decline observed in 2023.  Although headline inflation is down nearly two-thirds from its peak in 2022, it remains too high for American families, and the effects of elevated prices compared with the pre-pandemic era may be weighing on consumer sentiment.  Continued progress is needed to bring core inflation to a level consistent with the Federal Reserve’s target while allowing our economy to continue to grow.  The Biden Administration remains committed to helping this effort over the long term by expanding our economy’s productive capacity through significant investments in clean energy, manufacturing capacity, and infrastructure.

Real Gross Domestic Product (GDP)

Real GDP growth slowed to 1.6 percent in the first quarter of 2024, following strong advances in the second half of 2023.  The slower growth rate was largely attributable to drag from net exports and the change in private inventories, whereas private domestic final demand (PDFP) maintained a solid pace of growth, attesting to underlying momentum in the domestic economy (see Table 1 – Real Gross Domestic Product).

PDFP—composed of personal consumption expenditures (PCE), business fixed investment (BFI), and residential investment—captures the most stable and persistent components of economic growth.  Although PCE and BFI growth slowed somewhat in the first quarter, stronger residential investment bolstered real PDFP growth.  All told, PDFP added 2.6 percentage points to topline real GDP growth, only modestly less than the fourth quarter’s 2.8 percentage point contribution.

• Personal consumption of goods and services slowed in the first quarter but still made the largest contribution to GDP growth of any component.  Purchases of goods declined outright—shaving 0.1 percentage points from GDP growth—while the contribution from PCE of services strengthened to 1.8 percentage points.
• BFI grew at a solid, if somewhat slower pace, in the first quarter.  Investment in real equipment and intellectual property products strengthened while spending on business structures stalled.  Notably, investment in manufacturing structures persisted for the eleventh consecutive quarter, but factory investment growth in early 2024 was offset by less investment in other sectors’ structures.
• Residential investment, the final component of PDFP, accelerated sharply to a double-digit pace, marking the third consecutive quarter of growth since early 2021.  Construction of single-family residences contributed to residential investment, as did other structures (including brokers’ commissions)—partly reflecting the upturn in housing sales throughout the first quarter.

Of the remaining main components of GDP, government spending and investment made a positive contribution to economic growth in the first quarter, owing to the state and local sector.  By contrast, net exports and inventory changes subtracted from growth, accounting for over one-half of the slowdown in GDP growth in the first quarter relative to the fourth quarter of 2023.  The drag posed by the change in private inventories, which can exhibit wide swings from quarter to quarter, was only slightly smaller than that posed in the final quarter of 2023.  Meanwhile, the trade deficit widened by $55 billion, as the pace of import growth more than tripled.  Net exports, which subtracted 0.9 percentage points from real GDP growth in the first quarter, was the single largest factor in slowing economic growth.

Labor Markets

During this year’s first quarter, the average pace of payroll job creation accelerated, while indicators in the household employment survey—such as the unemployment rate and the labor force participation rate (LFPR)—held close to their 2023 fourth quarter averages.  Even so, there was further progress in correcting imbalances between labor supply and demand (see Table 2 – Labor Market Indicators).

• After slowing to 212,000 jobs per month in the final quarter of 2023, the average pace of payroll job creation accelerated to 276,000 per month in this year’s first quarter. Recent analysis suggests that above-trend immigration—which was postponed during the pandemic—has increased the breakeven pace of job growth needed to sustainably maintain a stable unemployment rate with population growth.  Current estimates are above 200,000 jobs, roughly double the estimated breakeven pace before the pandemic.
• The unemployment rate ticked up 0.1 percentage points over the first quarter to 3.8 percent in March; a broader measure, which captures underemployment of the workforce, rose 0.2 percentage points to 7.3 percent that month.  Despite the modest increases, both rates remain relatively low by historical standards.  As of the latest releases for mid-April, the level of initial unemployment claims has increased by about 12 percent from the end of December, while continuing unemployment claims have drifted up by less than 3 percent.  Nonetheless, recent readings are still in line with those in February 2020, just before the start of the COVID-19 pandemic in the United States.
• The overall labor force participation rate ticked down on average over the first quarter—though the LFPR for prime-age (ages 25-54) workers edged higher with increased participation by women.  Labor demand, as measured by job openings (or vacancies) fell modestly during the first quarter through February, continuing the downward trend seen since March 2022.  The ratio of job vacancies to unemployed workers has gradually declined since the spring of 2022; as of February, there were 1.36 job openings per unemployed worker—significantly down from the high of 2.03 vacancies but still marginally above the pre-pandemic high of 1.24 vacancies. The combination of improving supply (via above-trend immigration) and declining job openings attests to an ongoing rebalancing of labor supply and demand, but the vacancies ratio suggests further adjustment may be needed.

Headline inflation picked up during the first quarter of 2024 but, by March, was still about 60 percent below the peak in June 2022 on a year-over-year basis.  As measured by the consumer price index (CPI), the average monthly rate of inflation during the first quarter was 0.4 percent (or 4.6 percent at an annual rate), up from an average 0.2 percent per month (1.9 percent annualized) during the fourth quarter of 2023 (see Table 3 – Inflation and Wage Growth Indicators).

• Energy price inflation turned positive in the first quarter, rising 0.8 percent per month on average, after declining steadily throughout the fourth quarter.  Since January, energy prices have been bolstered by geopolitical tensions, repeated extensions of OPEC+ production cuts, and the expectation that an improving global macroeconomic outlook will boost oil demand.
• Average monthly food inflation remained stable in the first quarter at 0.2 percent, matching the average pace in the third and fourth quarters of 2023.  In short, food price inflation appears to have stabilized near rates observed prior to the pandemic.

Meanwhile, core inflation accelerated in the first quarter to 0.4 percent on average per month (4.5 percent at an annual rate), up from 0.3 percent per month (3.2 percent annualized) in the latter half of last year.  Even so, twelve-month core inflation in March was down by more than 40 percent from its peak in the autumn of 2022.

• Core goods prices decreased for the third consecutive quarter, but the pace of deflation stabilized at 0.1 percent on average in the first quarter of 2024.  On a year-over-year basis, however, core goods prices were down 0.7 percent in March 2024, the steepest decline since June 2020.
• Inflation for rent of housing services (primary rent and owners’ equivalent rent) ticked up in the first quarter but remained in the 0.4 percent to 0.5 percent range observed since May 2023.
• For non-housing core services, inflation accelerated significantly in the first quarter, largely reflecting higher prices for medical care services and motor vehicle insurance, among other components.  Price growth of automotive insurance alone accounted for nearly 60 percent of non-housing core services inflation.

Inflation as measured by the PCE price index has notable differences in weights and methodologies.  Historically, twelve-month CPI inflation has exceeded PCE inflation by about 0.4 percentage points on average.  In the first quarter, however, the wedge increased to 0.7 percentage points. The excess wedge was more than explained by differences between the two inflation measures in the weight assigned to owners’ equivalent rent (OER).  The CPI weighs OER more heavily, and persistently strong growth in OER since the autumn of 2021 has accounted for a significant portion of the excess wedge between the CPI and PCE measures of inflation.

Housing Markets

Housing markets remained tight in the first quarter with high home prices, limited supply, and elevated mortgage rates.  In addition, new residential construction weakened in the first quarter, but a few other measures of housing activity suggested an upturn.

Growth rates of various aspects of new residential construction declined outright in the first quarter, following moderate growth in the fourth quarter of 2023 (see Table 4 – Housing Construction).

• Total building permits—which precede future home construction—declined on average throughout the first quarter, as growth in both the single-family and multi-family permits turned negative.  The decrease in the multi-family sector extended a downtrend that began in the latter half of 2022.
• Total housing starts also turned negative in the first quarter on average, partly reflecting a double-digit decline in the volatile multi-unit sector.  Single-family starts also fell, but more modestly.
• The inventory of homes under construction fell modestly at the end of the first quarter, reflecting the transition of multifamily units from being under construction into the completed status.  Single-family home completions, meanwhile, declined substantially on average over the quarter.

Both existing and new home sales increased over the first quarter and, on balance, outpaced the increase in homes available for sale.  As a result, housing markets remained tight, and the inventory-to-sales ratio for existing homes declined further from an already-depressed level (see Table 5 – Home Sales & Inventories).

• Sales of total existing homes turned positive after three consecutive quarters of decline but still were down 3.7 percent over the year through March 2024.  Although the inventory of homes for sale rose by 12 percent from the end of 2023, the faster pace of sales eroded the inventory of existing homes for sale over the quarter to an average of 3.0 months of sales.  In the five years before the pandemic, the average inventory-to-sales ratio was 4.2 months.
• New home sales rebounded in the first quarter after the last quarter of 2023 interrupted a 5-quarter growth trend.  Despite the resumption of sales growth, the inventory-to-sales ratio for new homes increased slightly to an average of 8.4 months, remaining well above the pre-pandemic (2015-2019) average of 5.6 months.

Shelter price developments in the first quarter were mixed but, on balance, indicated still-elevated growth in home purchase prices and rental inflation (see Table 6 – Shelter Prices).

• The S&P/Case-Shiller’s national home price index accelerated in January (last available data as of April 29), while the pace of house price growth in the FHFA purchase-only index turned negative, after slowing considerably in the fourth quarter.  Despite the divergence in growth rates, price levels remained elevated.
• For renters, the CPI for rent of primary residence slowed at the margin in the first quarter, but the pace remained rapid.  After turning negative in the fourth quarter, listing services data on rental inflation accelerated sharply, a trend which the rent CPI may eventually reflect—though the timing and magnitude of passthrough to the primary rent CPI is uncertain.  By contrast, a new research series created by the Bureau of Labor Statistics—which has been shown to lead the CPI for primary rent by about a year—suggests an upcoming slowdown in renters' shelter costs.  This quarterly series better reflects prices renters would face if they changed housing units every quarter; it grew by just 0.4 percent over the year ending in the first quarter.

Risks to the Outlook

Even with substantial economic growth and a strong labor market, inflation has fallen considerably from its mid-2022 peak, though it remains above the Federal Reserve’s target.  We expect continued, gradual disinflation over the next year accompanied by continued economic growth and a gradually easing labor market.  However, there are risks to this outlook on both sides.

Geopolitical risks or persistently strong demand growth without comparable supply expansion could push inflation above consensus forecasts.  Russia’s war in Ukraine continues to add uncertainty to the medium-term outlook.  In addition, the ongoing conflict in the Middle East, drought conditions at the Panama Canal, and the collapse of the Francis Scott Key Bridge in Baltimore create further concerns of supply chain disruptions and could renew upward pressures on energy and goods prices.  Fortunately, major impacts to the U.S. economy have not materialized to date, but these remain important risks to monitor.

Although we expect price pressures from housing and other core services to continue to gradually ease, core services inflation remains elevated, and there is a risk of persistent inflation and associated financial distress.  Rent of housing inflation remains well above historical norms and continues to set a high floor for core inflation.  Although year-over-year growth rates for rents on new leasing agreements suggest future easing, the timing of passthrough to further disinflation for rent of housing is uncertain.

A significant cooling in the labor market could bring inflation down faster—but with greater cost for American workers.  Strong consumption in 2023 supported the economy, fueled by real income growth and a reduced saving rate.  Households have drawn down much of their excess savings from the pandemic period, but household net worth as a share of disposable personal income remains high relative to historical levels.  A healthy labor market continues to support consumption, but saving rates remain historically low and suggest recent consumption growth may be unsustainable. A slowdown in consumption could cool the labor market quickly, which could again reduce consumption and further slow the economy in 2024.

On the other hand, additional supply-side improvements could support continued strong economic growth without price pressures.  Strong labor supply and productivity growth both contributed to the robust economic performance in 2023, and more expansion of the supply-side of the economy could allow for faster monetary policy easing in 2024.

The American economy remains strong, with a healthy labor market and inflation well below the 2022 peak. Going forward, investments in expanding our economy’s productive capacity in ways that benefit all Americans—what Secretary Yellen has called “modern supply-side economics”—will help to continue to grow the economy in ways that avoid significant price pressures. The Administration remains committed to helping foster continued improvements such as those we saw in 2023.

Table 1 - Real Gross Domestic Product

Source. Bureau of Economic Analysis, Gross Domestic Product (Advance Estimate), First Quarter 2024.

Table 2 - Labor Markets

Sources. Bureau of Labor Statistics, The Employment Situation - March 2023 ; Job Openings and Labor Turnover - February 2023.

Table 3 - Inflation

Sources. Bureau of Labor Statistics, Consumer Price Index - March 2023. Bureau of Economic Analysis, Personal Income and Outlays, March 2023 .

1 For CPI, 12-month growth is not seasonally adjusted. 2 Imputed from CPI Data.

Table 4 - Housing Construction

Sources. Census Bureau, Monthly New Residential Construction, March 2023 .

Table 5 - Home Sales & Inventories

Sources. Census Bureau, Monthly New Residential Sales, March 2023. National Assocation of Realtors, Existing-Home Sales .

Table 6 - Shelter Prices

Sources. Standard & Poor's, S&P CoreLogic Case-Shiller Home Price Indices. Federal Housing Financing Agency, Home Price Index (HPI) Monthly Report . Zillow, Housing Data . Bureau of Labor Statistics, Consumer Price Index - March 2023 . Bureau of Labor Statistics, Price and Index Number Research, New Tenant Rent Index . 1 Annualized monthly rate through January. S&P and FHFA house price indices will be published on April 30. 2 12-month percent change, not seasonally adjusted. 3 Not seasonally adjusted. Quarterly growth rates are 4-quarter percent changes.