Deck 15: Exempt Entities

Question 1

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

Answer 1

False

Question 2

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%).

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

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.

Question 5

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.

Question 6

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

Question 7

A church is one of the types of exempt organizations.

Question 8

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.

Question 9

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.

Question 10

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

Question 11

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

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.

Question 13

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

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.

Question 15

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

Question 16

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.

Question 17

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.

Question 18

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

Question 19

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.

Question 20

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.

Question 21

For an activity to be considered as regularly carried on for purposes of the unrelated business income tax,the activity must be conducted during the work week (i.e. ,activities performed on the weekend are not considered in determining if the activity is regularly carried on).

Question 22

An exempt organization that otherwise would be classified as an unrelated trade or businesses will not be subject to the unrelated business income tax if the individuals performing substantially all the work of the trade or business do so without compensation.

Question 23

The activity of exchanging with or renting to other exempt organizations the exempt organization's donor or membership list is not an unrelated trade or business.

Question 24

The key factors in determining whether an exempt entity's income from a bingo game is unrelated trade or business income are whether substantially all the work is performed by volunteers and all of the prizes to be awarded are received as donations.

Question 25

The general objective of the tax on unrelated business income is to tax such income as if the entity were a taxable corporation.

Question 26

The excise tax imposed on private foundations for excess business holdings is imposed on investments that enable the private foundation to control publicly-held rather than privately-held businesses.

Question 27

An exempt organization is located in the state of Nevada.Gambling in Nevada is legal.Therefore,bingo games are conducted by both taxable and tax-exempt organizations.If the net earnings from the bingo games are less than $25,000,the exempt organization is not subject to the unrelated business income tax (UBIT).

Question 28

A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 50% of the merchandise sold had been received as a contribution.

Question 29

The excise tax imposed on a private foundation's excess business holdings is in effect an audit fee to defray IRS expenses.

Question 30

The excise tax that is imposed on private foundations for making jeopardizing investments is imposed because the foundation has made speculative investments that put the foundation's income at risk.

Question 31

Federal agencies exempt from Federal income tax under § 501(c)(1)are not subject to the unrelated business income tax (UBIT).

Question 32

If an exempt organization conducts a trade or business that is regularly carried on by the organization,it is subject to the unrelated business income tax (UBIT).

Question 33

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

Question 34

The income from a bingo game or a casino game conducted by an exempt organization may be unrelated business income.

Question 35

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 and thus be classified as a feeder organization.

Question 36

In calculating unrelated business taxable income,the exempt organization is permitted to deduct only the charitable contributions associated with the unrelated trade or business.

Question 37

A corporate payment to an exempt organization that qualifies as a qualified sponsorship payment is not subject to the unrelated business income tax (UBIT).

Question 38

An activity is not an unrelated trade or business for purposes of the unrelated business income tax (UBIT)unless it is profitable.

Question 39

A trade or business that is operated by an exempt organization which otherwise would be subject to the tax on unrelated business income is exempt from tax,if the profits generated by the trade or business are used by the exempt organization for exempt purposes.

Question 40

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.

Question 41

For purposes of the unrelated business income tax,debt-financed property is all property of the exempt organization that is held to produce income and on which there is acquisition indebtedness.

Question 42

Which of the following is not an example of an exempt organization?

A)Religious,charitable,or educational organization.
B)Voluntary employees' beneficiary association.
C)Labor,agricultural,or horticultural organization.
D)American Federation of Teachers (a teachers' union).
E)All of the above can be exempt from tax.

Question 43

Which of the following is a requirement for exempt status?

A)The organization does not exert political influence.
B)The organization has not been subject to intermediate sanctions for the past 3 taxable years.
C)The organization serves some type of common good.
D)Only a.and c.
E)a. ,b. ,and c.

Question 44

Which of the following statements is incorrect?

A)No exempt organizations can engage in any lobbying activities.
B)Certain exempt organizations can elect to engage in lobbying activities on a limited basis.
C)Churches can engage in lobbying activities on an unlimited basis because of the separation of church and state provision.
D)Only b.and c.are incorrect.
E)Only a.and c.are incorrect.

Question 45

Which of the following are organizations exempt under § 501(c)(3)?

A)Girl Scouts of America.
B)Washington and Lee University.
C)Veterans of Foreign Wars (VFW).
D)Only a.and b.are § 501(c)(3)organizations.
E)All of the above are § 501(c)(3)organizations.

Question 46

If the unrelated business income of an exempt organization is $20,000 or less,the unrelated business income tax (UBIT)will be $0.

Question 47

Even though a church is not required to obtain IRS approval of its exempt status,it still must file Form 990 (Return of Organization Exempt from Income Tax)annually.

Question 48

All exempt organizations which are subject to the unrelated business income tax must file Form 990-T (Exempt Organization Business Income Tax Return).

Question 49

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.

Question 50

Which of the following statements regarding intermediate sanctions is correct?

A)Intermediate sanctions are self-assessing (i.e. ,calculated and paid by the taxpayer rather than being imposed by the IRS).
B)The excise tax is imposed on the exempt organization and on disqualified persons.
C)Both a first-level tax and a second-level tax may apply.
D)The corporate tax rates apply in calculating the amount of the tax liability.
E)None of the above is correct.

Question 51

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.

Question 52

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

Question 53

Even though a church is exempt under § 501(c)(3),it is required to obtain IRS approval for its exempt status.

Question 54

Which of the following are exempt organizations to which contributions made are eligible for the charitable contribution deduction?

A)National Basketball Association (NBA).
B)Red Cross.
C)American Institute of CPAs (AICPA).
D)Only b.and c.
E)a. ,b. ,and c.

Question 55

Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?

A)Attempt to subject all or part of the organization's income to Federal income tax.
B)Revoke the exempt status of the organization.
C)Impose intermediate sanctions in the form of threatened loss of exempt status.
D)Only a.and b.
E)a. ,b. ,and c.

Question 56

Unless the "widely available" provision is satisfied,a § 501(c)(3)exempt organization (excluding churches and private foundations)must make copies of the following available to the general public: Form 990 (Return of Organization Exempt from Income Tax)and Form 1023 [Application for Recognition of Exemption under § 501(c)(3)] or Form 1024 [Application for Recognition of Exemption under § 501(a)].

Question 57

The due date for both Form 990 (Return of Organization Exempt from Income Tax)and Form 990-PF (Return of Private Foundation)is the fifteenth day of the fourth month after the end of the taxable year.

Question 58

Which of the following are exempt organizations?

A)National Football League (NFL).
B)American Bankers Association (ABA).
C)Professional Golfers Association (PGA).
D)Only a.and c.
E)a. ,b. ,and c.

Question 59

Rose,Inc. ,a qualifying § 501(c)(3)organization,incurs lobbying expenditures of $145,000 during the taxable year.Exempt purpose expenditures are $500,000.If Rose makes the election under § 501(h)to make lobbying expenditures on a limited basis,its tax liability resulting from the lobbying expenditures is:

A)$0.
B)$7,250.
C)$11,250.
D)$36,250.
E)Some other amount.

Question 60

Which of the following activities,whose proceeds benefit an exempt organization,are subject to the feeder organization rules?

A)A weekly raffle operated by paid employees.
B)A car wash operated on Saturdays by volunteers.
C)A yard sale of donated clothes.
D)A thrift shop run by volunteers.
E)None of the above is subject to the feeder organization rules.

Question 61

Which of the following statements is correct?

A)A private foundation is,in general,exempt from Federal income tax.
B)A private foundation may be subject to certain types of Federal income tax.
C)If a broad public support test is satisfied,an exempt organization that otherwise would be classified as a private foundation is not classified as a private foundation.
D)Only b.and c.are correct.
E)a. ,b. ,and c.are correct.

Question 62

Which of the following are qualified corporate sponsorship payments?

A)The amount of the payment by the corporation to the exempt organization is contingent on the attendance at one or more events.
B)The payment by the corporation to the exempt organization results in only a half-page advertisement in the event program.
C)The payment by the corporation to the exempt organization results in the corporate logo appearing in the exempt organization's monthly newsletter.
D)Only b.and c.
E)a. ,b. ,and c.

Question 63

An exempt organization can avoid classification as a private foundation if it is broadly publicly supported.To be broadly publicly supported,which of the following is required?

A)The exempt organization does not receive support from a feeder organization.
B)An external support test is satisfied.
C)An internal support test is satisfied.
D)Only b.and c.must be satisfied.
E)a. ,b. ,and c.must be satisfied.

Question 64

Which of the following § 501(c)(3)exempt organizations is appropriately classified as a private foundation?

A)First Methodist Church.
B)University of Richmond.
C)Williamsburg Community Hospital.
D)Salvation Army.
E)None of the above.

Question 65

Which of the following statements is correct?

A)For an exempt organization not to be classified as a private foundation under the broadly supported provision,both the external support test and the internal support test must be satisfied.
B)For an exempt organization not to be classified as a private foundation under the broadly supported provision,both the external support test and the internal support test must be failed.
C)For an exempt organization not to be classified as a private foundation under the broadly supported provision,the external support test must be satisfied and the internal support test must be failed.
D)For an exempt organization not to be classified as a private foundation under the broadly supported provision,the external support test must be failed and the internal support test must be passed.
E)None of the above statements is correct.

Question 66

Which of the following statements is/are correct with respect to the unrelated business income tax (UBIT)?

A)The UBIT does not apply if the business is staffed by volunteers.
B)The UBIT does not apply if all of the products sold by the business are donated.
C)The UBIT does not apply if the gross profit margin is not greater than the highest corporate tax rate.
D)Only a.and b.are correct.
E)a. ,b. ,and c.are all correct.

Question 67

Which of the following activities is not subject to the feeder organization rules?

A)At least 80% of the net income of the for-profit entity is contributed to the exempt organization for a consecutive three-year period.
B)A trade or business where substantially all the work is performed by volunteers.
C)A trade or business of selling merchandise where substantially all of the merchandise has been received as contributions or gifts.
D)Only b.and c.
E)a. ,b. ,and c.

Question 68

Tan,Inc. ,a tax-exempt organization,has $65,000 of net unrelated business income.Total charitable contributions (all associated with the unrelated trade or business)are $7,500.Assuming that the $7,500 was deducted in calculating net unrelated business income,what is Tan's unrelated business taxable income?

A)$57,500.
B)$65,250.
C)$66,000.
D)$72,500.
E)Some other amount.

Question 69

Blue,Inc. ,receives its support from the following sources. Which of the following statements is correct?

A)Blue,Inc. ,is a private foundation because it satisfies the external support test and fails the internal support test.
B)Blue,Inc. ,is not a private foundation because it fails both the internal and external support tests.
C)Blue,Inc. ,is a private foundation because it satisfies both the external support test and the internal support test.
D)Blue,Inc. ,is not a private foundation because it satisfies both the external support test and the internal support test.
E)None of the statements is true.

Question 70

Robin,Inc. ,a tax-exempt organization,leases a building and equipment to XYZ Corporation.The rental income from the building is $480,000 and from the equipment is $36,000.Rental expenses are $300,000 for the building and $33,000 for the equipment.What adjustment must be made to net unrelated business income?

A)$0.
B)($33,000).
C)($36,000).
D)($183,000).
E)Some other amount.

Question 71

A private foundation is subject to which of the following taxes?

A)Tax on self-dealing.
B)Tax on investments in publicly traded stock.
C)Tax on taxable expenditures that jeopardize charitable purposes.
D)Only a.and c.
E)a. ,b. ,and c.

Question 72

Fourth Church operates a gift shop in its parish house.The total income of the church is $900,000.Of this amount,$400,000 comes from offerings and $500,000 comes from the net income of the gift shop.The gift shop operations are conducted by one full-time employee (the manager)and 50 volunteers.None of the volunteers works more than 15 hours per week.Which of the following statements is correct?

A)The $900,000 is unrelated business income.
B)The $500,000 of gift shop net income is unrelated business income.
C)The $400,000 is unrelated business income because the gift shop is a feeder organization.
D)None of the $900,000 is unrelated business income.
E)The unrelated business income tax does not apply to churches.

Question 73

Relevant factors in the unrelated business income tax (UBIT)rules for determining whether a trade or business is regularly carried on by an exempt organization do not include which of the following?

A)The proportion of the total revenue of the exempt organization raised by the activity.
B)The frequency of the activity.
C)The continuity of the activity.
D)The manner in which the activity is pursued.
E)All of the above are relevant factors.

Question 74

Which of the following requirements must be satisfied for an organization to be subject to the unrelated business income tax (UBIT)?

A)The organization is an exempt organization.
B)The organization conducts a trade or business that is regularly carried on.
C)The trade of business is not substantially related to the exempt purpose of the organization.
D)Only b.and c.must be satisfied.
E)a. ,b. ,and c.must be satisfied.

Question 75

Which of the following excise taxes are imposed on the private foundation because it engages in prohibited transactions?

A)Tax on investment income.
B)Tax on self-dealing.
C)Tax on failure to distribute income.
D)Only b.and c.
E)a. ,b. ,and c.

Question 76

Which of the following statements are correct with respect to the unrelated business income tax?

A)Under certain circumstances,a corporate sponsorship payment can be classified as not being an unrelated trade or business.
B)Under certain circumstances,a casino game can be classified as not being an unrelated trade or business.
C)Under certain circumstances,the exchanging or renting of membership lists to other exempt organizations can be classified as not being an unrelated trade or business.
D)Only a.and c.are correct.
E)a. ,b. ,and c.all are correct.

Question 77

Which of the following statements regarding low-cost articles is correct?

A)The distribution of low-cost articles can be classified as not being an unrelated trade or business.
B)For 2012,a low-cost article is one that costs $9.70 or less.
C)Any contributions received as the result of the distribution of low-cost articles must be included in unrelated business income.
D)Only a.and b.are correct.
E)a. ,b. ,and c.are correct.

Question 78

Teal,Inc. ,is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?

A)An excise tax in the form of an initial tax at the rate of 5% may be imposed on Teal.
B)An excise tax in the form of an initial tax at the rate of 2.5% may be imposed on the foundation manager.
C)An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D)An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
E)None of the statements is correct.

Question 79

Which of the following taxes that are imposed on private foundations is,effectively,an audit fee to defray IRS expenses?

A)Tax on self-dealing.
B)Tax on failure to distribute income.
C)Tax on excess business holdings.
D)Only a.and c.
E)None of the above.

Question 80

Which of the following requirements must be satisfied for a bingo game to be classified as not being an unrelated trade or business?

A)The bingo game is legal under both state and local law.
B)The bingo game is conducted by volunteers.
C)For-profit bingo games ordinarily are not permitted in the jurisdiction.
D)Only a.and b.must be satisfied.
E)Only a.and c.must be satisfied.