Question 1

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

Accepted Answer

The unrelated business income tax (UBIT) is calculated by multiplying unrelated business taxable income by the corporate tax rate, which is currently 21%. Therefore, the statement is true.

Question 2

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax only if the exempt organization is a private foundation.

Accepted Answer

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax for all exempt organizations, not just private foundations.

Question 3

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 4

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

Accepted Answer

According to IRS publication 598, revenue generated from the distribution of low-cost items is a permissible activity for tax-exempt organizations and is not considered income from an unrelated trade or business.

Question 5

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 6

Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.

Accepted Answer

This statement is false. Both personal property rental income and real property rental income are subject to the unrelated business income tax if they are earned by a tax-exempt organization and are not related to the organization's exempt purpose.

Question 7

The excise tax imposed on a private foundation's investment income can be imposed as an initial (first-level) tax but cannot be imposed as an additional (second-level) tax.

Accepted Answer

Private foundations are subject to an excise tax on their net investment income, which is considered a first-level tax. This tax is calculated on the foundation's investment income and requires the foundation to pay a percentage of the income they earn from investments to the government. However, an additional or second-level tax cannot be imposed on a private foundation's investment income.

Question 8

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 from Federal income tax under § 501(c)(1) are also exempt from the unrelated business income tax (UBIT).

Question 9

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 10

If an exempt organization conducts a trade or business that is regularly carried on by the organization, where 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, it is not subject to the unrelated business income tax (UBIT). UBIT applies to income from activities not substantially related to the exempt purpose.

Question 11

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 12

The purpose of the excise tax imposed on a private foundation for failure to distribute sufficient levels of income is to motivate the foundation to distribute more of its income for application to exempt purposes.

Accepted Answer

The excise tax serves as a penalty for private foundations that do not distribute enough of their income for charitable purposes, and is designed to encourage foundations to increase their charitable giving.

Question 13

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

This is because the purpose of the unrelated business income tax is to prevent exempt organizations from engaging in activities that are not related to their exempt purposes in order to avoid paying taxes on unrelated income. If the trade or business is substantially related to the exempt purpose, it is not subject to the unrelated business income tax.

Question 14

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 15

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

Accepted Answer

When a corporation sponsors a sporting event and agrees to make a payment contingent on attendance, this payment is considered unrelated business income for the recipient organization. This is because the payment is not directly related to the organization's exempt purpose or mission, but rather a benefit received for the promotion or advertising of the sponsor's business. Therefore, the payment is subject to unrelated business income tax (UBIT) and may result in tax liability for the recipient organization.

Question 16

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

Accepted Answer

Churches are exempt from filing Form 990 with the IRS, as long as they meet certain criteria. They are still required to keep records of their income and expenses and make them available upon request.

Question 17

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 18

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 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 casino game conducted by an exempt organization may be considered unrelated business income and subject to taxation. However, there are certain exceptions and limitations that may apply. It is important for exempt organizations to carefully evaluate their activities and consult with a tax professional to determine their tax liabilities.

Question 20

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

According to IRS Publication 598, "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."

Quiz 23: Exempt Entities