Deck 14: Exempt Entities

Question 1

The Local Church operates a gift shop in its parish house.The total income of the church is $800,000.Of this amount, $600,000 comes from offerings and $200,000 comes from the net income of the gift shop.The gift shop operations are conducted equally by three volunteers and seven full-time employees.Which of the following statements is correct?

A)The $800,000 is unrelated business income.
B)The $200,000 of gift shop net income is unrelated business income.
C)The $200,000 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.

Answer 1

B

Question 2

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

A)Universities.
B)Churches.
C)Exempt organizations whose annual gross receipts do not exceed $25,000.
D)Private foundations.
E)None of these entities must file Form 990.

Answer 2

A

Question 3

Lavender, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $300,000 during the taxable year.Exempt purpose expenditures are $1,900,000.If Lavender makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

A)$13,750.
B)$61,250.
C)$75,000.
D)$91,875.
E)None of the above.

Answer 3

A

Question 4

Lilac, Inc., receives its support from the following sources. $\begin{array}{lc}\text { Governmental unit A, for services rendered } & \$ 20,000 \\\text { General public, for services rendered } & 40,000 \\\text { Gross investment income } & 50,000 \\\text { Contributions from individual substantial } & 15,000 \\\text { contributors (disqualified persons) } &\end{array}$ Which of the following statements is correct?

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

Question 5

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 6

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 tax is imposed on the exempt organization.
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 7

Jasmine, Inc., a tax-exempt organization, has $600,000 of net unrelated business income.Total charitable contributions (all associated with the unrelated trade or business) are $60,000.Assuming that the $60,000 is deducted in calculating the $600,000 net unrelated business income, what is Jasmine's unrelated business taxable income?

A)$540,000.
B)$600,000.
C)$506,000.
D)$660,000.
E)Some other amount.

Question 8

Iris, Inc., a tax-exempt organization, leases a building and equipment to XYZ Corporation.The rental income from the building is $250,000 and from the equipment is $80,000.Rental expenses are $50,000 for the building.What adjustment must be made to net unrelated business income?

A)($280,000).
B)($200,000).
C)($80,000).
D)$280,000.
E)Some other amount.