Question 1

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

Accepted Answer

The program expense ratio is calculated as program service expenses divided by total expenses and provides an indication of the extent to which a not-for-profit is dedicating its resources to programs as opposed to administration, fund-raising and membership development. Shifting costs from fund-raising to program expenses will increase/improve the ratio.

Question 2

A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entity's tax-exempt purposes.

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 3

Entities that are tax-exempt under IRS Section 501c3 are permitted to endorse political candidates or attempt to influence legislation.

Accepted Answer

Entities that are tax-exempt under IRS Section 501c3 are not permitted to endorse political candidates or attempt to influence legislation to retain its tax-exempt status.

Question 4

Section 501c3, exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation.

Accepted Answer

are prohibited from supporting political candidates or campaigning to influence legislation to retain their tax-exempt status.

Question 5

According to GASB, Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entity's performance.

Accepted Answer

Government and not-for-profit effectiveness cannot be expressed solely in financial terms. Effectiveness in nonbusiness organizations must be measured in terms of the quality of the service provided or the extent to which an organization fulfills its mission. For this reason, many governments and not-for-profits report nonfinancial information in addition to their financial statements. The framework for combining this information is termed Service and Accomplishments reporting.

Question 6

The three major user groups identified by the GASB are 1) citizen groups, 2) legislative and oversight officials, and 3) investors and creditors.

Accepted Answer

The three groups of users of government financial information identified by the GASB are: 1) citizens/voters, 2) investors and creditors, and 3) legislative and oversight officials.

Question 7

Entities that are tax-exempt under IRS Section 501c3 are prohibited from having surpluses revenues exceed expenses.

Accepted Answer

501c3 entities are not prohibited from earning a surplus/profit.

Question 8

Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes.

Accepted Answer

Internal Revenue Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes. These include civic leagues, trade and professional associations, social clubs and country clubs, fraternal societies and veterans organizations.

Question 9

Bonds which carry the full faith and credit of a government are called revenue bonds.

Accepted Answer

Bonds which carry the full faith and credit of a government are called general obligation bonds.

Question 10

When computing Unrelated Business Income Tax, charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed.

Accepted Answer

When computing the unrelated business income tax, not-for-profit organizations are allowed to deduct ordinary and necessary business expenses directly connected with their trade or business, a $1,000 special deduction, charitable contributions, and many of the other deductions available to business organizations.

Question 11

Churches, schools and hospitals are public charities.

Accepted Answer

A public charity is defined as 1) a church, school, hospital, governmental unit or publicly supported charity, 2) an organization that receives more than one-third of its support form a combination of contributions, membership fees, and gross receipts from exempt activities and no more than one-third of its support from a combination of investment income and net unrelated business income after taxes, 3) an organization operated exclusively for the benefit of organizations already described, or 4) an organization founded and operated exclusively for public safety.
.

Question 12

are required to file Form 990 by the 15th day of the 9th month following the organization's taxable year.

Accepted Answer

Form 990, 990-EZ, or 990-PF must be filed by the 15th day of the 5th month after the end of your organization's accounting period.

Question 13

An organization that receives more than two-thirds of its support from a combination of contributions, membership fees, and gross receipts from exempt and no more than one-third of its support from a combination of investment income and net unrelated income after taxes is a public charity.

Accepted Answer

A public charity is defined as 1) a chuch, school, hospital, governmental unit or publicly supported charity, 2) an organization that receives more than one-third of its support form a combination of contributions, membership fees, and gross receipts from exempt activities and no more than one-third of its support from a combination of investment income and net unrelated business income after taxes, 3) an organization operated exclusively for the benefit of organizations already described, or 4) an organization founded and operated exclusively for public safety.

Question 14

Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status.

Accepted Answer

are prohibited from supporting political candidates or campaigning to influence legislation to retain their tax-exempt status.

Question 15

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 16

Debt service coverage can only be directly measured from proprietary fund statements since cash flow statements are not prepared for governmental funds or at the government-wide level.

Accepted Answer

Debt service coverage can only be directly measured from proprietary fund statements since cash flow statements are not prepared for governmental funds or at the government-wide level.

Question 17

Service Efforts and Accomplishments Reporting is best completed by using a variety of measures, which are reported consistently.

Accepted Answer

SEA reporting should present a variety of measures. Those measures should be reported consistently, in a timely manner, and in a way that is easily understood.

Question 18

To apply for tax-exempt status, an organization must complete an IRS Form 1023.

Accepted Answer

To apply for tax-exempt status, Form 1023, Application for Recognition of Exemption must be completed.

Question 19

If a tax-exempt organization is found by the IRS to have paid unreasonable benefits, the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Accepted Answer

If executive compensation is found to be unreasonable, the executive is required to pay back the excess benefit to the tax-exempt organization. In addition, there is a tax penalty of 25 percent of the excess benefit on the individual receiving the compensation and a penalty of 10 percent on the individuals responsible for approving the compensation. If the executive receiving the excess benefits fails to repay the amount in a timely manner, an additional tax equal to 200 percent may be imposed by the IRS.

Question 20

Bonds which carry the full faith and credit of a government are called general obligation bonds.

Accepted Answer

Bonds which carry the full faith and credit of a government are called general obligation bonds.

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

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entity's tax-exempt purposes.

Entities that are tax-exempt under IRS Section 501c3 are permitted to endorse political candidates or attempt to influence legislation.

Section 501c3, exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation.

According to GASB, Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entity's performance.

The three major user groups identified by the GASB are 1) citizen groups, 2) legislative and oversight officials, and 3) investors and creditors.

Entities that are tax-exempt under IRS Section 501c3 are prohibited from having surpluses revenues exceed expenses.

Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes.

Bonds which carry the full faith and credit of a government are called revenue bonds.

When computing Unrelated Business Income Tax, charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed.

Churches, schools and hospitals are public charities.

are required to file Form 990 by the 15th day of the 9th month following the organization's taxable year.

An organization that receives more than two-thirds of its support from a combination of contributions, membership fees, and gross receipts from exempt and no more than one-third of its support from a combination of investment income and net unrelated income after taxes is a public charity.

Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status.

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.

Debt service coverage can only be directly measured from proprietary fund statements since cash flow statements are not prepared for governmental funds or at the government-wide level.

Service Efforts and Accomplishments Reporting is best completed by using a variety of measures, which are reported consistently.

To apply for tax-exempt status, an organization must complete an IRS Form 1023.

If a tax-exempt organization is found by the IRS to have paid unreasonable benefits, the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Bonds which carry the full faith and credit of a government are called general obligation bonds.