Deck 23: Exempt Entities

Question 1

A church is one of the types of exempt organizations.

Answer 1

True

Question 2

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.

Answer 2

True

Question 3

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 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

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 9

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 10

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis. An
example of such an exempt organization is a church.

Question 11

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

Question 12

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 13

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

Question 14

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 15

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 one­third of the exempt organization's support for the taxable year must come from gross investment income and unrelated business taxable income.

Question 16

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

Question 17

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

Question 18

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 19

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

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

A corporate sponsorship payment that is contingent on attendance at a sporting event increases the amount of unrelated business income.

Question 23

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

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 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 26

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 27

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

Question 28

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

Question 29

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

Question 30

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 31

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 32

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 33

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 34

A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 80% of the merchandise sold had been received as a contribution.

Question 35

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 36

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

Question 37

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 38

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 39

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, but is subject to the tax on feeder organizations.

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

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

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.
E) None of the above is correct.

Question 43

Which of the following statements is correct?

A) A feeder organization is a division of a tax-exempt organization and it is not 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 44

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 45

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

Question 46

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 excise taxes.
D) Only a. and b.
E) a., b., and c.

Question 47

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 48

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 49

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

Question 50

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 51

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

Question 52

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 53

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 54

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 55

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

Question 56

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 57

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 58

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 59

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

Question 60

Which of the following qualify as exempt organizations?

A) Federal and related agencies.
B) Religious, charitable, and educational organizations.
C) Civic leagues.
D) Social clubs.
E) All of the above can be exempt from tax.

Question 61

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 62

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 63

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 64

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 65

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 66

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 67

Blue, Inc., receives its support from the following sources.
$\begin{array}{llr} \text { Governmental unit \( A \), for services rendered } &\$18,000\\ \text {General public, for services rendered } &25,000\\ \text {Gross investment income } &8,000\\ \text { Contributions from individual substantial contributors (disoulalified persons) } &19,000\\\\\text { Which of the following statements is correct? }\end{array}$

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 68

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).
E) Some other amount.

Question 69

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 70

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 71

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 72

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 73

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 74

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 2014, a low-cost article is one that costs $10.40 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 75

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.
E) None of the above.

Question 76

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 77

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 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 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 80

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 exempt 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.