Question 1

Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign. An executive who recently completed an executive MBA degree program recommends that personal address labels be included as an additional way to motivate the potential donor to contribute. The value of these labels is $3.95 per potential donor. What is the effect of the inclusion of the address labels on Watch's unrelated business income?

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Question 2

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000. $\begin{array}{lr}
\text { Dividend income } & \$ 12,000 \
\text { Interest income } & 6,000 \
\text { Royalty income } & 15,000 \
\text { Rent income from } & \
\text { equipment } & 25,000
\end{array}$ The only expenses incurred associated with these items are rental expenses (which includes depreciation of $10,000)
of $15,000. Calculate City, Inc.'s UBTI.

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Question 3

Agnes is aware that a feeder organization is subject to Federal income taxation. She wonders whether an organization that is otherwise taxable as a feeder organization can avoid such status if it remits at least 80% of its profits to the § 501(c)(3) entity.

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Question 4

Identify the components of the tax model for unrelated business taxable income.

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Question 5

Pearl Inc., a tax-exempt organization, leases land, building, and machinery to Purple Partnership for a 5-year period.
The rental income from the land and building is $100,000, with related expenses of $40,000. The rental income from the machinery is $9,000 with related expenses of $3,000. What adjustment must be made in computing net unrelated business income?

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Question 6

What are intermediate sanctions and to what types of exempt organizations do they apply?

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Question 7

Why are some organizations exempt from Federal income tax?

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Question 8

Ice, Inc., a § 501(c)(3) organization, has been leasing a building to Soft, Inc., a taxable entity, for 15 years. The lease terminates in the current tax year. Ice's adjusted basis for the building is $225,000. It sells the building to the Development Partnership, a taxable entity, for $440,000. Selling expenses are $26,400. Calculate the effect of the sale on Ice's UBTI.

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Question 9

Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.

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Question 10

Define a private foundation.

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Question 11

What are the excise taxes imposed on private foundations, and why are they imposed?

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Question 12

What are the common characteristics of organizations that receive exempt status?

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Question 13

What is the purpose of the unrelated business income tax?

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Question 14

Are organizations that qualify for exempt organization status completely exempt from Federal income taxation?

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Question 15

Plus Inc. is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?

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Question 16

Describe how a public charity can be eligible to make lobbying expenditures without losing its tax exemption.

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Question 17

How can an exempt organization otherwise classified as a private foundation become a public charity?

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Question 18

Discuss benefits for which an exempt organization may be eligible, other than exemption from Federal income tax.

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Question 19

An eligible § 501(c)(3) organization has made the § 501(h) election to participate in lobbying on a limited basis. If the lobbying nontaxable amount is exceeded, what are the potential tax consequences to the exempt organization?

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Question 20

Arbor, Inc., an exempt organization, leases land, building, and machinery to a tenant for a 5-year period. The rent income for the land and building is $400,000 per year and that from the related machinery is $80,000 per year. Expenses incurred by Arbor for the land and building during the year are $60,000, and those for the machinery are
$36,000. Net unrelated business income, which includes the above rental income and expenses, is $800,000. Calculate Arbor's unrelated business taxable income.

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Quiz 23: Exempt Entities