Question 1

If a tax-exempt organization is found by the IRS to have paid excessive benefits,the organization must pay a tax penalty of 25% of the excess benefit and the employee must pay a 10% penalty,but the employee is entitled to keep the benefits.

Accepted Answer

If a tax-exempt organization is found to have paid excessive benefits, the organization must be corrected the excess benefit. The tax penalty for the organization could be up to 200% of the excess benefit. The employee who received the excessive benefit may also be subject to a penalty of 25% of the excess benefit if they knowingly participated in the transaction. The employee may also be required to return the excessive benefit to the organization.

Question 2

A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Accepted Answer

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient evidence to form an opinion or is not independent.

Question 3

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Accepted Answer

According to the Uniform Guidance, if an auditee is not considered low-risk, the auditor is required to express an opinion on compliance for major programs, which must collectively account for at least 50% of federal funds expended by the auditee.

Question 4

Entities that are tax-exempt under IRS Section 501(c)3 are prohibited from having surpluses (revenues exceed expenses).

Accepted Answer

Tax-exempt entities under IRS Section 501(c)3 can have surpluses, but they must be used for the organization's exempt purpose and cannot be distributed to private individuals or organizations.

Question 5

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

Accepted Answer

Form 990-N, the electronic postcard, is available for tax-exempt not-for-profits with annual gross receipts of $50,000 or less. It requires only eight pieces of information.

Question 6

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes.

Accepted Answer

This is known as unrelated business income tax (UBIT) and is intended to ensure that tax-exempt organizations do not enjoy an unfair advantage over their for-profit competitors.

Question 7

Entities that are tax-exempt under Section 501(c)3 of the Internal Revenue Code do not have to pay income taxes,even if some of their activities compete with commercial enterprises.

Accepted Answer

are required to pay tax at the corporate rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes. The purpose of this requirement is to eliminate advantages that have over profit-making organizations.

Question 8

The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Accepted Answer

The Unrelated Business Income Tax is designed to ensure that tax-exempt organizations do not have an unfair advantage over commercial businesses by engaging in activities that are unrelated to their tax-exempt purposes. Organizations that generate significant income from such activities are required to pay tax on that income.

Question 9

Tax-exempt organizations are required to disclose the compensation of its officers,directors,trustees,highest paid employees and independent contractors in the Form 990.

Accepted Answer

This is a requirement of the IRS and is stated in the instructions for Form 990.

Question 10

The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies,upon request,of the three most recent annual form 990s.

Accepted Answer

The Taxpayer Bill of Rights does require tax-exempt organizations to provide copies of the three most recent annual form 990s upon request.

Question 11

In a disclaimer of opinion,the auditor states that no opinion is being expressed.

Accepted Answer

In a disclaimer of opinion, the auditor clearly states that they are not expressing any opinion on the financial statements.

Question 12

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unless the money is used to carry out the entity's tax-exempt purposes.

Accepted Answer

The answer of Tax-exempt organizations are required to pay tax...

Question 13

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 25 percent of federal funds expended by the auditee.

Accepted Answer

Major programs are determined on a risk-based approach not by size. The auditor is required to express an opinion on compliance for major programs, which generally must add up to 50% of the federal funds expended by the auditee. This percentage is reduced to 25% if the auditee is determined by the auditor to be a low-risk auditee.

Question 14

The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

Accepted Answer

The classification of Net Assets for tax-exempt organizations follows the same guidelines as those set by FASB for not-for-profit organizations.

Question 15

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Accepted Answer

Entities that meet these criteria are eligible to file Form 990-EZ instead of the full Form 990.

Question 16

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 50,000 may file Form 990-N (electronic postcard).

Accepted Answer

This is true according to the IRS regulations. Nonprofits with gross receipts of less than $50,000 are eligible to file the simplified electronic Form 990-N, also known as the e-Postcard.

Question 17

Governmental Audit Reports are due nine months after the end of the fiscal year.

Accepted Answer

According to Generally Accepted Government Auditing Standards (GAGAS), also known as the Yellow Book, government audit reports are due within nine months after the end of the fiscal year. This allows for sufficient time for auditors to complete their work and issue the report.

Question 18

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 90 percent of federal funds expended by the auditee.

Accepted Answer

Major programs are determined on a risk-based approach not by size. The auditor is required to express an opinion on compliance for major programs, which generally must add up to 50% of the federal funds expended by the auditee. This percentage is reduced to 25% if the auditee is determined by the auditor to be a low-risk auditee.

Question 19

Unrelated Business Income Tax is an excise tax,applied to the gross receipts of a business activity.Therefore allocations of expenses incurred in generating the income are irrelevant.

Accepted Answer

Unrelated Business Income Tax is income tax that are required to pay on income generated from any trade or business activities unrelated to the entity's tax-exempt purposes. Unrelated business income is taxed at the corporate rate.

Question 20

Churches are exempt from Form 990 filing requirements.

Accepted Answer

This is true. Churches and certain other religious institutions are exempt from filing Form 990 with the IRS. However, they are still required to maintain records of their financial activities and make them available upon request by the IRS.

Quiz 13: Auditing, Tax-Exempt Organizations, and Evaluating Performance

If a tax-exempt organization is found by the IRS to have paid excessive benefits,the organization must pay a tax penalty of 25% of the excess benefit and the employee must pay a 10% penalty,but the employee is entitled to keep the benefits.

A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Entities that are tax-exempt under IRS Section 501(c)3 are prohibited from having surpluses (revenues exceed expenses).

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes.

Entities that are tax-exempt under Section 501(c)3 of the Internal Revenue Code do not have to pay income taxes,even if some of their activities compete with commercial enterprises.

The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Tax-exempt organizations are required to disclose the compensation of its officers,directors,trustees,highest paid employees and independent contractors in the Form 990.

The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies,upon request,of the three most recent annual form 990s.

In a disclaimer of opinion,the auditor states that no opinion is being expressed.

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unless the money is used to carry out the entity's tax-exempt purposes.

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 25 percent of federal funds expended by the auditee.

The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

Entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)3 with gross receipts less than $ 50,000 may file Form 990-N (electronic postcard).

Governmental Audit Reports are due nine months after the end of the fiscal year.

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 90 percent of federal funds expended by the auditee.

Unrelated Business Income Tax is an excise tax,applied to the gross receipts of a business activity.Therefore allocations of expenses incurred in generating the income are irrelevant.

Churches are exempt from Form 990 filing requirements.