Deck 23: Exempt Entities

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

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 a public charity.

Question 5

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

Question 6

To be classified as a private foundation,the exempt status of an organization can be provided under either § 501(c)(1) or § 501(c)(3).

Question 7

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

Question 8

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities in the same manner as a C corporation.

Question 9

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.The taxes are not imposed on exempt organizations classified as public charities.

Question 10

A feeder organization is an exempt organization that provides funding for nutritional programs for children.

Question 11

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

Question 12

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis.Churches are allowed to make this election.

Question 13

An exempt entity is not subject to any Federal income tax.

Question 14

To satisfy the "not for profit" requirement for exempt status,the entity may not be engaged in a trade or business.

Question 15

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 16

A church is one of the types of exempt organizations.

Question 17

General requirements for exempt status include the organization serving the common good and the organization being a not-for-profit entity.

Question 18

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 19

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%).

Question 20

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

Question 21

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.

Question 22

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

Question 23

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 24

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

Question 25

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

Question 26

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).

Question 27

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

Question 28

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 two of the five previous years.

Question 29

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.

Question 30

If the unrelated business income of an exempt organization is $25,000 or less,the unrelated business income tax (UBIT) is $0.

Question 31

Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.

Question 32

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.

Question 33

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

Question 34

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 35

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 36

Only certain exempt organizations must obtain IRS approval to obtain exempt status.

Question 37

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

Question 38

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

Question 39

Some of the excise taxes which may be imposed on private foundations may be imposed on both the private foundation and the foundation manager.

Question 40

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.

Question 41

A § 501(c)(3) exempt organization (excluding churches and private foundations) must make available to the general public its current Form 990.

Question 42

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.

Question 43

Which of the following statements regarding the unrelated business income tax is correct?

A)Private foundations are subject to the unrelated business income tax.
B)Bingo games are not subject to the unrelated business income tax if they are conducted by an exempt organization.
C)The exchange or rental of membership lists with other exempt and nonexempt organizations is not an unrelated trade or business.
D)All of the above statements are correct.
E)None of the above statements is correct.

Question 44

Garden,Inc.,a qualifying § 501(c)(3) organization,incurs lobbying expenditures of $210,000 during the taxable year.Exempt purpose expenditures are $900,000.If Garden 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)$12,500.
C)$50,000.
D)$60,000.
E)None of the above.

Question 45

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 46

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 47

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.

Question 48

Which of the following statements is correct?

A)A feeder organization is a division of a tax-exempt organization and it is subject to the Federal income tax.
B)A feeder organization is a tax-exempt organization whose purpose is to provide food to underprivileged children.
C)A feeder organization is a taxable organization whose purpose is to provide reduced cost meals to its employees that are excluded from the employee's gross income.
D)Only a.and b.are correct.
E)None of the above statements is correct.

Question 49

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

Question 50

Which of the following statements is correct regarding the unrelated business income tax (UBIT)?

A)To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is regularly carried on by the organization.
B)To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business must be substantially related to the exempt purpose of the organization, and the trade or business must be regularly carried on by the organization.
C)To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is carried on during more than half the year.
D)An exempt entity that conducts a business that competes with for-profit businesses automatically is subject to the UBIT.
E)None of the above statements is correct.

Question 51

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 10% may be imposed on Teal.
B)An excise tax in the form of an initial tax at the rate of 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.

Question 52

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.

Question 53

A § 501(c)(3) organization that otherwise would be classified as a private foundation can avoid such classification if it satisfies:

A)Only an external support test.
B)Only an internal support test.
C)Both an external support test and an internal support test.
D)An external support test, an internal support test, and a good faith test.

Question 54

Which of the following statements is correct?

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..

Question 55

Third Church operates a gift shop in its parish house.The total income of the church is $800,000.Of this amount,$300,000 comes from offerings and $500,000 comes from the net income of the gift shop.The gift shop operations are conducted by six full-time,paid employees.Which of the following statements is correct?

A)The $800,000 is unrelated business income.
B)The $500,000 of gift shop net income is unrelated business income.
C)The $300,000 is unrelated business income because the gift shop is a feeder organization.
D)None of the $800,000 is unrelated business income.
E)The unrelated business income tax does not apply to churches.

Question 56

Which of the following statements regarding the unrelated business income tax is not correct?

A)Unrelated business income is income from activities not related to the exempt purpose of the organization.
B)The unrelated business income tax is levied because the exempt organization is engaging in substantial commercial activities.
C)If the unrelated business income tax were not levied, nonexempt organizations would be placed at a substantial disadvantage when trying to compete with the exempt organization.
D)The tax rate that is applied to unrelated business taxable income is the highest corporate tax rate.
E)All of the above statements are correct.

Question 57

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)Stock exchange.
E)All of the above can be exempt from tax.

Question 58

Which of the following taxes can be imposed on private foundations?
Which of the following taxes can be imposed on private foundations?

A)Tax on self-dealing.
B)Tax on failure to distribute income.
C)Tax on excess business holdings.
D)Only a.and c.
E)All of the above.

Question 59

Which of the following attributes are associated with exempt organizations?

A)Organization serves some type of common good.
B)Organization is not a for profit entity.
C)Net earnings do not benefit the members of the organization.
D)Organization does not exert political influence.
E)All of the above statements are true.

Question 60

Which of the following excise taxes are imposed on private foundations?

A)Tax on failure to distribute income.
B)Tax on excess business holdings.
C)Tax on excess charitable contributions.
D)Only a.and b.
E)a.,b.,and c.

Question 61

First Americans,Inc.,a § 501(c)(3) organization,operates a museum which depicts the lives of a tribe of Native Americans.It charges an admission fee,but also finances its operations through endowment income,contributions,and gift shop sales.The gift shop is operated by 50 volunteers and the museum is operated by 15 employees.Revenue by source is:
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a.Determine the amount of First Americans' unrelated business income (UBI).
b.Determine the amount of First American's unrelated business income tax (UBIT).

Question 62

Assist,Inc.,a § 501(c)(3) organization,receives the following sources of support during the tax year.
Is Assist,Inc.,classified as a private foundation?

Question 63

Which of the following statements regarding exempt organization filing requirements is incorrect?

A)Churches are required to file Form 990 (Return of Organization Exempt from Income Tax) only if its annual gross receipts exceed $50,000.
B)The due date for Form 990 (Return of Organization Exempt from Income Tax) is the fifteenth day of the fifth month after the end of the taxable year,whereas for private foundations the due date for Form 990-PF (Return of Private Foundation) is the fifteenth day of the fourth month after the end of the tax year.
C)Exempt organizations whose annual gross receipts do not exceed $50,000 can file an e-Postcard.
D)Only a.and b.are incorrect.
E)a.,b.,and c.are incorrect.

Question 64

All of the stock of Hot Dog,Inc.,a fast food franchise operating in 9 southeastern states,is owned by Welcome America,Inc.,a § 501(c)(3) organization.The stock was received last year as an inheritance from Rob,the entrepreneur who founded the chain.
During the current year,Hot Dog reports profits before taxes and taxable income of $8 million.Hot Dog distributes $5 million to its parent,and it retains the balance for expansion purposes.
a. What are the tax consequences to Hot Dog and to Welcome America?
a. change if Hot Dog distributes $8 million to Welcome America, rather than $5 million?
b. How would your answer in

Question 65

Help,Inc.,a tax-exempt organization,incurs lobbying expenses of $275,000 during the tax year.Help is eligible for and makes the § 501(h) lobbying expenditure election.During the year,Help spends $1,200,000 carrying out its exempt mission.
a.Will the lobbying expense result in Help losing its exempt status?
b.Calculate the amount of any tax that Help must pay associated with its lobbying expenses.

Question 66

Which of the following is a requirement that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property,for purposes of the unrelated business income tax?

A)The principal purpose of acquiring the land is for investment.
B)The land is used within ten years of the acquisition date in the organization's exempt purpose.
C)The land is located in the United States.
D)Only a.and b.

Question 67

Well,Inc.,a private foundation,makes a speculative investment of $400,000 that puts the foundation assets at risk.Calculate the tax on jeopardizing investments.Assume that corrective action is taken so that the additional tax does not apply.

Question 68

Which of the following statements are correct?

A)If an exempt organization records annual gross receipts of less than $50,000,it files Form 990-N.
B)Private foundations must file Form 990-PF (Return of Private Foundation).
C)An exempt organization with less than $250,000 in gross receipts may file a Form 990-EZ.
D)Only a.and b.are correct.
E)a.,b.,and c.all are correct.

Question 69

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.

Question 70

Medical,Inc.,a § 501(c)(3) exempt organization,engages in an excess benefit transaction,such that the intermediate sanctions rules may apply.The amount of the excess benefit is $50,000.For the organization management,the participation in the excess benefit transaction was not willful and was due to reasonable cause.Calculate the amount of the excise tax (first-level tax) imposed under the intermediate sanctions provision.

Question 71

Restful,Inc.,a § 501(c)(3) exempt organization,hires a registered lobbyist to promote its position on pending legislation.For the year,its lobbying expenses are $100,000.Restful makes the § 501(h) election.The lobbying nontaxable amount is $90,000.
a.Will the lobbying expenses result in Restful losing its exempt status?
b.Calculate the amount of any tax that Restful must pay associated with the lobbying expenses.

Question 72

Maroon,Inc.,a tax-exempt organization,leases a building and equipment to Brown Partnership.The rental income from the building is $100,000 and from the equipment is $9,000.Rental expenses are $40,000 for the building and $4,000 for the equipment.What adjustment must be made to net unrelated business income?

A)$0
B)($60,000)
C)($65,000)
D)($109,000)

Question 73

Which of the following statements regarding low-cost articles is correct?
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 2017,a low-cost article is one that costs $10.70 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 74

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax)?

A)Federal agencies.
B)Churches.
C)Exempt organizations whose annual gross receipts do not exceed $50,000.
D)Private foundations.
E)None of these entities must file Form 990.

Question 75

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

Question 76

Spirit,Inc.,a § 501(c)(3) organization,is classified as a private foundation.It reports investment income of $175,000.Calculate Spirit's tax on its investment income.

Question 77

Which of the following statements is correct regarding the disclosure Regulations for exempt entities?

A)Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available" requirement.
B)Forms 990 and 1023 must be readily available to the general public.
C)If an individual requests a copy of the required tax forms in writing,the exempt entity must provide a copy within 30 days.
D)Only a.and b.are correct.
E)a.,b.,and c.are all correct.

Question 78

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 is determined by the number of hits on the exempt organization's internet page.
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 79

Miracle,Inc.,is a § 501(c)(3) organization involved in medical research.Based on its expectation that proposed legislation will adversely affect the funding supporting its mission,Miracle hires a lobbyist to work in Washington to represent its views.
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Miracle is eligible for and thus makes the § 501(h) election.It calculates the lobbying nontaxable amount to be $100,000 ($500,000 exempt purpose expenditures × 20%).The total lobbying expenditures for the year were $115,000.Calculate Miracle's tax on excess lobbying expenditures.

Question 80

For purposes of the unrelated business income tax (UBIT),land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied.Which of the following is not a requirement?

A)The principal purpose of acquiring the land is for use (substantially all) in achieving the organization's exempt purpose.
B)The fair market value of the land is not over 50% of the fair market value of land presently owned by the exempt organization.
C)The use of the land by the exempt organization will begin within ten years of the acquisition date.
D)At the date the land is acquired, it is located in the neighborhood of other property of the organization for which substantially all the use is for achieving the organization's exempt purpose.