Question 1

An entity satisfies the "not-for-profit" requirement for exempt status if its total expenses for the year exceed its gross income.

Accepted Answer

This statement is false. In order to qualify as a not-for-profit organization for tax-exempt status, an entity must be organized and operated for exempt purposes, such as charitable, educational, or scientific purposes, and it must not provide private benefit to individuals or organizations. The criteria for tax exemption are not based on the financial performance of the organization, but on its purpose and activities.

Question 2

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

Accepted Answer

False

Question 3

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

False

Question 4

If an exempt organization owns a feeder organization, the exempt organization is taxed on the profits of the feeder organization under the unrelated business income tax (UBIT) rules.

Accepted Answer

The answer of If an exempt organization owns a feeder...

Question 5

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 focused on raising revenue, but it also considers social and economic factors such as promoting certain behaviors through tax incentives or providing relief to certain taxpayers.

Question 6

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 are not imposed on exempt organizations classified as public charities.

Accepted Answer

This statement is true. Excise taxes on self-dealing and excess business holdings are only imposed on private foundations, not public charities.

Question 7

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

Accepted Answer

An organization with exempt status is generally exempt from federal income taxes on income related to its exempt purposes, but it may still be subject to taxes on unrelated business income or other specific taxes.

Question 8

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

The statement is false. Churches and educational institutions are generally classified as public charities, not private foundations. Private foundations are generally organizations that are funded by one individual, family, or corporation and do not receive a significant amount of their support from the general public.

Question 9

A church is one of the types of exempt organizations.

Accepted Answer

Churches are considered exempt organizations under section 501(c)(3) of the Internal Revenue Code. This means they are not subject to federal income tax, and donations to them are tax-deductible for donors.

Question 10

All organizations that are exempt from Federal income tax are exempt under § 501(c)(3).

Accepted Answer

Not all organizations exempt from Federal income tax fall under § 501(c)(3); there are other sections like 501(c)(4), 501(c)(6), etc., that provide tax-exempt status for different types of organizations.

Question 11

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

Accepted Answer

The answer of An intermediate sanction imposed by the IRS...

Question 12

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

The Internal Revenue Code imposes certain restrictions and excise taxes on private foundations, which may result in less favorable tax consequences for donors making charitable contributions to these organizations compared to donations made to other types of exempt organizations.

Question 13

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 14

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, the organization must receive more than one-third of its support from contributions, membership fees, and gross receipts from activities related to its exempt purposes. Gross investment income and unrelated business taxable income are not counted towards the internal support test.

Question 15

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

Accepted Answer

An exempt entity may still be subject to Federal income tax on unrelated business taxable income (UBTI) or other specific circumstances.

Question 16

While certain § 501(c)(3) organizations can elect to be permitted to lobby on a limited basis, churches are not eligible to make a § 501(h) election.

Accepted Answer

Churches are not eligible to make a § 501(h) election, regardless of their lobbying activities.

Question 17

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 if its only sources of revenue are from tuition and alumni contributions.

Accepted Answer

The answer of An educational organization such as the College...

Question 18

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 19

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

Engaging in a prohibited transaction can lead to an exempt organization losing its tax-exempt status, even if it is a single occurrence, depending on the severity and nature of the transaction.

Question 20

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.

Quiz 23: Exempt Entities