Deck 15: Exempt Entities

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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.

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

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

Question 6

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

Question 7

Theater, Inc., an exempt organization, owns a printing company, Printers, Inc., that remits 85% of its profits i.e., taxable income of $100,000) to Theater. Since Printers remits at least 85% of its profits to Theater, neither Theater, nor Printers, must pay income tax on this $85,000 $100,000 × 85%).

Question 8

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 9

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

Question 10

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 11

A church is one of the types of exempt organizations.

Question 12

To satisfy the broadly supported provision to avoid classification as a private foundation, an 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 13

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 14

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 15

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

Question 16

An educational organization such as Williams College that is exempt under § 501c)3) cannot be classified as a private foundation if its only sources of revenue are from tuition and alumni contributions.

Question 17

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

Question 18

All organizations that are exempt from Federal income tax are "charities."

Question 19

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

Question 20

The tax consequences to a donor of making a charitable contribution to a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to a public charity.

Question 21

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

Question 22

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 23

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

Question 24

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

Question 25

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

Question 26

Which of the following attributes are associated with exempt organizations?

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

Question 27

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

Question 28

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

Question 29

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

Question 30

If an exempt organization conducts a trade or business that is regularly carried on by the organization when the business relates to the organization's exempt purpose, the organization is subject to the unrelated business income tax UBIT).

Question 31

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 32

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

Question 33

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

Question 34

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

Question 35

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 these can be exempt from tax.

Question 36

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 three of the five previous years.

Question 37

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 38

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 39

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

Question 40

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 41

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 42

Teal, Inc., is a private foundation that 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 43

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 44

By default, an exempt entity is a:

A) Public charity.
B) Private foundation.
C) Private charity.
D) Feeder organization.

Question 45

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 a flat 30% income tax rate.
E) All of these statements are correct.

Question 46

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 these statements is correct.

Question 47

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) $65,000
B) $65,250
C) $66,000
D) $72,500

Question 48

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 10 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.

Question 49

Chorus reports $20,000 of sales of pizzas at the local high school ballgames this year. Related expenses total $6,000. UBTI equals:

A) $-0-.
B) $13,000.
C) $14,000.
D) $20,000.

Question 50

The Form 990-N:

A) Is filed by new exempt entities.
B) Records the asset holdings and liabilities of the exempt organization.
C) Is also known as the e-Postcard.
D) No longer exists.

Question 51

Ballet's lobbying nontaxable amount is $600,000. Its lobbying expenditures ceiling is:

A) $0.
B) $150,000.
C) $600,000.
D) $900,000.

Question 52

Garden, Inc., a qualifying § 501c)3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

A) $0.
B) $12,500.
C) $40,000.
D) $50,000.
E) $60,000.

Question 53

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 54

A museum's lobbying nontaxable amount is $600,000. Its grass roots nontaxable amount is:

A) $600,000.
B) $300,000.
C) $150,000.
D) $0.

Question 55

A § 501c)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 56

Blue, Inc., receives its support from the following sources. Governmental unit A for services rendered $18,000
General public for services rendered 25,000
Gross investment income 8,000
Contributions from individual disqualified persons 19,000
Which of the following statements is correct?

A) Blue is a private foundation because it satisfies the external support test and fails the internal support test.
B) Blue is not a private foundation because it fails both the internal and external support tests.
C) Blue is a private foundation because it satisfies both the external support test and the internal support test.
D) Blue is not a private foundation because it satisfies both the external support test and the internal support test.

Question 57

The Jimenez Group, a private foundation, has been found guilty of self-dealing. To minimize its Federal excise taxes from this activity, Jimenez should:

A) Surrender its tax-exempt status.
B) Reorganize as a C corporation.
C) Pay the second-level excise tax immediately.
D) Undo "correct") the violation immediately.

Question 58

To provide the greatest Federal income tax benefits for its donors, Orchestra would prefer to be a:

A) Public charity.
B) Private foundation.
C) C corporation.
D) Feeder organization.

Question 59

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 these statements are correct.
E) None of these statements is correct.

Question 60

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 Federal income tax rates apply in calculating the amount of the tax liability.

Question 61

Matching
Give an example of the indicated types of exempt organizations.
a. League of Women Voters.
b. Teachers' association.
c. American Plywood Association.
d. Six Flags over Texas theme park.
e. Salvation Army.
§ 501c)6) business league

Question 62

Gallery, a public charity, reports annual gross receipts of $100,000 and has total assets of $425,000. It should file an):

A) Form 990.
B) Form 990-PF.
C) Form 990-N e-Postcard).
D) Form 990-EZ.

Question 63

Matching
Give an example of the indicated types of exempt organizations.
a. League of Women Voters.
b. Teachers' association.
c. American Plywood Association.
d. Six Flags over Texas theme park.
e. Salvation Army.
§ 501c)3) organization

Question 64

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
Unrelated business income is generally that derived from the unrelated trade or business reduced by the deductions directly connected with the conduct of the unrelated trade or business.

Question 65

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
The trade or business consists of selling merchandise, and substantially all of the merchandise has been received as gifts or contributions to the entity.

Question 66

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
Debt-financed income is the net income from investment assets.

Question 67

Match the following statements.
a. May be subject to some Federal income taxation, and classification may adversely affect the amount of charitable contributions received.
b. Tax imposed for engaging in transactions with disqualified persons.
c. Tax imposed for making investments that are too risky.
d. Tax imposed on investments that enable a private foundation to control unrelated for-profit businesses.
Private foundation

Question 68

Matching
Give an example of the indicated types of exempt organizations.
a. League of Women Voters.
b. Teachers' association.
c. American Plywood Association.
d. Six Flags over Texas theme park.
e. Salvation Army.
Not an exempt organization

Question 69

Matching
Give an example of the indicated types of exempt organizations.
a. League of Women Voters.
b. Teachers' association.
c. American Plywood Association.
d. Six Flags over Texas theme park.
e. Salvation Army.
§ 501c)4) civic league

Question 70

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax.
a. 10% initial tax and 25% additional tax on private foundation.
b. 30% initial tax and 100% additional tax on private foundation.
c. 10% initial tax and 200% additional tax on private foundation.
d. 10% initial tax and 100% additional tax on disqualified person.
e. 10% initial tax and 200% additional tax on the disqualified person.
Tax on jeopardizing investments

Question 71

Matching
Give an example of the indicated types of exempt organizations.
a. League of Women Voters.
b. Teachers' association.
c. American Plywood Association.
d. Six Flags over Texas theme park.
e. Salvation Army.
§ 501c)5) labor organization

Question 72

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
Form 990-PF.

Question 73

Match the following statements.
a. May be subject to some Federal income taxation, and classification may adversely affect the amount of charitable contributions received.
b. Tax imposed for engaging in transactions with disqualified persons.
c. Tax imposed for making investments that are too risky.
d. Tax imposed on investments that enable a private foundation to control unrelated for-profit businesses.
Tax on self-dealing

Question 74

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
The trade or business is not substantially related to the exempt purpose of the organization.

Question 75

Match the following statements.
a. May be subject to some Federal income taxation, and classification may adversely affect the amount of charitable contributions received.
b. Tax imposed for engaging in transactions with disqualified persons.
c. Tax imposed for making investments that are too risky.
d. Tax imposed on investments that enable a private foundation to control unrelated for-profit businesses.
Tax on excess business holdings

Question 76

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax.
a. 10% initial tax and 25% additional tax on private foundation.
b. 30% initial tax and 100% additional tax on private foundation.
c. 10% initial tax and 200% additional tax on private foundation.
d. 10% initial tax and 100% additional tax on disqualified person.
e. 10% initial tax and 200% additional tax on the disqualified person.
Tax on excess business holdings

Question 77

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax.
a. 10% initial tax and 25% additional tax on private foundation.
b. 30% initial tax and 100% additional tax on private foundation.
c. 10% initial tax and 200% additional tax on private foundation.
d. 10% initial tax and 100% additional tax on disqualified person.
e. 10% initial tax and 200% additional tax on the disqualified person.
Tax on self-dealing

Question 78

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
Form 990.

Question 79

Match the following tax forms.
a. Return of Private Foundation.
b. Application for Recognition of Exemption under § 501c)3).
c. Return of Organization Exempt from Income Tax.
d. Application for Recognition of Exemption under § 501a).
Form 990

Question 80

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax.
a. 10% initial tax and 25% additional tax on private foundation.
b. 30% initial tax and 100% additional tax on private foundation.
c. 10% initial tax and 200% additional tax on private foundation.
d. 10% initial tax and 100% additional tax on disqualified person.
e. 10% initial tax and 200% additional tax on the disqualified person.
Tax on failure to distribute adequate amounts of income