Question 1

Only certain exempt organizations must obtain IRS approval to obtain exempt status.

Accepted Answer

Not all organizations seeking tax-exempt status are required to obtain IRS approval; some, like churches, are automatically considered exempt, but others must apply to the IRS to obtain formal recognition of their tax-exempt status.

Question 2

Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.

Accepted Answer

The answer of Debt-financed property consists of all real property...

Question 3

If the unrelated business income of an exempt organization is $25,000 or less, the unrelated business income tax
(UBIT) is $0.

Accepted Answer

The answer of If the unrelated business income of an...

Question 4

All exempt organizations that are subject to the unrelated business income tax must file Form 990-T (Exempt
Organization Business Income Tax Return).

Accepted Answer

The answer of All exempt organizations that are subject to...

Question 5

Which of the following attributes are associated with exempt organizations?

Accepted Answer

Exempt organizations are typically defined by serving a common good (A), not operating for profit (B), ensuring net earnings do not benefit members but are reinvested into the organization's mission (C), and by restrictions on political influence to maintain their tax-exempt status (D). Therefore, all of these attributes are associated with exempt organizations.

Question 6

If an exempt organization conducts a trade or business that consists of either exchanging or renting to other exempt organizations the organization's donor or membership list, such trade or business is an unrelated trade or business.

Accepted Answer

The answer of If an exempt organization conducts a trade...

Question 7

For purposes of the unrelated business income tax (UBIT), a trade or business consists of any activity conducted for the production of income through the sale of merchandise, or from the performance of services for which profits have been earned during at least three of the five previous years.

Accepted Answer

The definition of a trade or business for purposes of the unrelated business income tax (UBIT) does not include a specific requirement regarding profit generation in at least three of the five previous years. This criterion is related to the IRS rule for distinguishing a hobby from a business for tax purposes, not specifically for UBIT considerations.

Question 8

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is the fifteenth day of the third month after the end of the taxable year.

Accepted Answer

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is generally the 15th day of the 5th month after the end of the organization's taxable year.

Question 9

A corporate sponsorship payment that is contingent on attendance at a sporting event increases the recipient's unrelated business income.

Accepted Answer

Corporate sponsorship payments that are contingent on the level of attendance, broadcast ratings, or other factors indicating the level of public exposure to the sponsored event can be considered advertising or a form of unrelated business income, rather than a donation, which can increase the recipient's unrelated business taxable income.

Question 10

Even though a church is not required to obtain IRS approval of its exempt status, it still must annually file a Form
990.

Accepted Answer

Churches are generally exempt from the requirement to file Form 990, the annual information return that most tax-exempt organizations must file with the IRS.

Question 11

Federal agencies exempt from Federal income tax under § 501(c)(1) are not subject to the unrelated business income tax (UBIT).

Accepted Answer

Federal agencies exempt under § 501(c)(1) are not subject to unrelated business income tax (UBIT) because they are considered instrumentalities of the United States and their income is typically not derived from a trade or business unrelated to their exempt purposes.

Question 12

Revenue generated by an exempt organization from the distribution of low-cost items is not income from an unrelated trade or business.

Accepted Answer

Revenue generated by an exempt organization from the distribution of low-cost items is considered an activity related to the organization's exempt purpose, and thus, it is not classified as income from an unrelated trade or business. This is because such activities are not regularly carried on and are substantially related to the organization's mission.

Question 13

Which of the following is not an example of an exempt organization?

Accepted Answer

Stock exchanges are not typically classified as exempt organizations. Exempt organizations generally include those that are charitable, educational, religious, or serve a similar purpose, which does not include the operations of a stock exchange.

Question 14

The trade or business of selling merchandise where substantially all of the merchandise has been received as contributions or gifts is not subject to the unrelated business income tax.

Accepted Answer

Organizations that sell merchandise substantially all of which has been received as contributions or gifts are generally not subject to unrelated business income tax (UBIT) because such sales are considered related to their exempt purpose.

Question 15

The unrelated business income tax (UBIT) is calculated by multiplying unrelated business taxable income by the corporate tax rate.

Accepted Answer

UBIT is calculated by applying the corporate tax rate to the unrelated business taxable income, which is income from a trade or business that is not substantially related to the organization's exempt purpose.

Question 16

If personal property is leased with real property and more than 45% of the rent income under the lease is from personal property, all of the rent income is subject to the unrelated business income tax.

Accepted Answer

Only the portion of the rent income attributable to the personal property is subject to the unrelated business income tax, not all of the rent income.

Question 17

A § 501(c)(3) exempt organization (excluding churches and private foundations) must make available to the general public its current Form 990.

Accepted Answer

A § 501(c)(3) exempt organization, excluding churches and private foundations, is required by the IRS to make its Form 990 available for public inspection, which includes providing it upon request and in some cases posting it online to ensure transparency and public access to its financial information.

Question 18

For an exempt organization to be subject to the unrelated business income tax, the trade or business must not be substantially related to the exempt purpose of the organization.

Accepted Answer

The unrelated business income tax (UBIT) applies to income from a trade or business that is regularly carried on and is not substantially related to the organization's exempt purpose, beyond the need for income generation.

Question 19

The income from a bingo game or a casino game conducted by an exempt organization may be unrelated business income.

Accepted Answer

The income from a bingo game or a casino game conducted by an exempt organization may be considered unrelated business income if the activities are not substantially related to the organization's exempt purpose, except when specific legal exceptions apply.

Question 20

If an exempt organization conducts a trade or business that is regularly carried on by the organization when the business relates to the organization's exempt purpose, the organization is subject to the unrelated business income tax (UBIT).

Accepted Answer

If the trade or business is related to the organization's exempt purpose, the income generated from it is not subject to unrelated business income tax (UBIT), as UBIT applies to income from a trade or business that is not substantially related to the organization's exempt purpose.

Quiz 23: Exempt Entities