Question 1

Exempt organizations which are appropriately classified as private foundations include churches, educational institutions, and charitable organizations receiving a major portion of their support from the general public or the U.S., a state, or a political subdivision thereof.

Accepted Answer

Churches, educational institutions, and charitable organizations that receive a major portion of their support from the general public or government are classified as public charities and not private foundations. Private foundations are typically funded by an individual, family, or corporation and are subject to stricter regulations and tax laws than public charities.

Question 2

An educational organization such as the College of William and Mary that is exempt under § 501(c)(3) cannot be classified as a private foundation.

Accepted Answer

According to the IRS, educational organizations such as the College of William and Mary that are exempt under § 501(c)(3) are considered public charities and are not classified as private foundations. Private foundations have different tax regulations and requirements than public charities.

Question 3

If an exempt organization owns a feeder organization, the exempt organization is not taxed on the profits of the feeder organization under the unrelated business income tax (UBIT) rules.

Accepted Answer

An exempt organization is not taxed on the profits of its feeder organization under the unrelated business income tax (UBIT) rules because the feeder organization is considered to be an integral part of the exempt organization.

Question 4

All bona-fide churches generally are exempt from Federal income tax.

Accepted Answer

This is true according to the Internal Revenue Code, section 501(c)(3), which grants tax-exempt status to nonprofit organizations operated exclusively for religious, charitable, scientific, or educational purposes. Churches are automatically considered 501(c)(3) organizations and are exempt from paying federal income tax.

Question 5

George is running for mayor of Culpepper. The members of Third Church adamantly oppose his candidacy. They would like to run a political advertisement in the local newspaper opposing his candidacy. The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George; it does not support his opponent.

Accepted Answer

The answer of George is running for mayor of Culpepper....

Question 6

An exempt organization that is eligible to elect under § 501(h) to engage in lobbying activities on a limited basis incurs no tax liability from lobbying, if the lobbying expenditures for the tax year do not exceed the lobbying expenditures ceiling.

Accepted Answer

The answer of An exempt organization that is eligible to...

Question 7

While the major objective of the Federal income tax law is to raise revenue, social considerations and economic objectives also affect the tax law.

Accepted Answer

The Federal income tax law is not only designed to raise revenue but also considers social considerations and economic objectives such as promoting charitable giving, business incentives, and support for families.

Question 8

Qualified state tuition programs are exempt from Federal income tax under § 501(c)(3).

Accepted Answer

Qualified state tuition programs are actually exempt from Federal income tax under § 529, not § 501(c)(3).

Question 9

A feeder organization is exempt from Federal income taxation because it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity.

Accepted Answer

A feeder organization is not automatically exempt from Federal income taxation simply because it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity. To be exempt, the organization itself must meet specific requirements and obtain tax-exempt status from the IRS.

Question 10

To satisfy the broadly supported provision to avoid classification as a private foundation, the exempt organization must satisfy both an external support test and an internal support test. Under the internal support test, more than one-third of the exempt organization's support for the taxable year must come from gross investment income and unrelated business taxable income.

Accepted Answer

Under the internal support test, more than one-third of the exempt organization's support for the taxable year must come from public support rather than gross investment income and unrelated business taxable income.

Question 11

The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is not classified as a private foundation.

Accepted Answer

Private foundations are subject to stricter rules and limitations on deductions for donors than other types of exempt organizations. Donors to private foundations may only deduct up to 30% of their adjusted gross income, rather than the 50% limit for donations to most other types of charities. Additionally, private foundations are subject to excise taxes on certain activities, such as self-dealing and excess business holdings.

Question 12

Theater, Inc., an exempt organization, owns a printing company, Printers, Inc., which remits 85% of its profits to Theater, Inc. Since Printers remits at least 85% of its profits to Theater, neither Theater, Inc., nor Printers, Inc., must pay income tax on this $85,000 ($100,000 ´ 85%).

Accepted Answer

The answer of Theater, Inc., an exempt organization, owns a...

Question 13

If an organization qualifies for exempt status for Federal income tax purposes, it is exempt from all Federal income taxes.

Accepted Answer

The answer of If an organization qualifies for exempt status...

Question 14

An exempt entity in no circumstance is subject to Federal income tax.

Accepted Answer

The answer of An exempt entity in no circumstance is...

Question 15

An organization that is a for-profit entity can partially qualify for exempt status.

Accepted Answer

For-profit entities do not qualify for tax-exempt status, which is typically reserved for non-profit organizations that meet specific criteria set by the IRS.

Question 16

An intermediate sanction imposed by the IRS on an exempt organization is a lesser sanction than revocation of exempt status.

Accepted Answer

An intermediate sanction is a penalty imposed by the IRS on an exempt organization for excess benefit transactions, which are transactions between the organization and disqualified persons that result in the person receiving more than fair market value for their involvement with the organization. Intermediate sanctions can include monetary fines and penalties, and are intended to correct the transaction and prevent future excess benefit transactions. Revocation of exempt status is a more severe penalty that would result in the organization losing its tax-exempt status.

Question 17

The League of Women Voters is a § 501(c)(3) organization.

Accepted Answer

The answer of The League of Women Voters is a...

Question 18

The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed on exempt organizations classified as private foundations and also are imposed on exempt organizations classified as public charities.

Accepted Answer

Excise taxes like those on self-dealing and excess business holdings are specifically imposed on private foundations, not on public charities.

Question 19

A § 501(c)(5) labor organization is prohibited from lobbying for or against the passage of legislation.

Accepted Answer

A § 501(c)(5) labor organization is allowed to engage in some lobbying, but it cannot be a primary activity and is limited to specific restrictions and requirements under the tax code.

Question 20

Engaging in a prohibited transaction can result in an exempt organization being subject to Federal income tax, but cannot cause it to lose its exempt status unless the exempt organization repeats the prohibited transaction.

Accepted Answer

The answer of Engaging in a prohibited transaction can result...

Quiz 15: Exempt Entities