Question 1

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

Accepted Answer

While many organizations may be exempt under § 501(c)(3), there are other subsections of § 501(c) that provide exemptions for different types of organizations, such as social welfare organizations under § 501(c)(4) and business leagues under § 501(c)(6).

Question 2

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

Accepted Answer

False

Question 3

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

Accepted Answer

The Federal income tax law is influenced by social considerations and economic objectives in addition to the primary objective of raising revenue.

Question 4

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).

Accepted Answer

To be classified as a private foundation, the exempt status of an organization can only be provided under § 501(c)(3). Section 501(c)(1) pertains to organizations that are exempt as a federal credit union.

Question 5

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.

Accepted Answer

The statement is incorrect. To satisfy the internal support test, more than one-third of the exempt organization's support for the taxable year must come from contributions, membership fees, and gross receipts from activities related to the organization's exempt purposes. Gross investment income and unrelated business taxable income do not count towards the internal support test.

Question 6

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

Accepted Answer

A feeder organization typically refers to an entity that supports or supplies recruits, members, or resources to another, larger organization, rather than specifically funding nutritional programs for children.

Question 7

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.

Accepted Answer

A feeder organization is not automatically exempt from Federal income taxation simply because it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity. To be exempt, the organization itself must meet specific requirements and obtain tax-exempt status from the IRS.

Question 8

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%).

Accepted Answer

While Theater, Inc. may not have to pay income tax on the $85,000 received from Printers, Inc., Printers, Inc. would still be required to pay income tax on its profits before remitting the 85% to Theater, Inc.

Question 9

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

Accepted Answer

The answer of The League of Women Voters is a...

Question 10

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.

Accepted Answer

The answer of An educational organization such as the College...

Question 11

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.

Accepted Answer

Contributions to private foundations are subject to more restrictions and limitations, such as lower deductible limits and excise taxes, compared to contributions to other types of exempt organizations such as public charities.

Question 12

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.

Accepted Answer

The answer of George is running for mayor of Culpepper....

Question 13

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.

Accepted Answer

The answer of Engaging in a prohibited transaction can result...

Question 14

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

Accepted Answer

This is correct. To qualify for exempt status, the organization must serve a charitable, religious, educational, scientific, literary, or other similar purpose that benefits the public, and must be organized as a not-for-profit entity.

Question 15

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.

Accepted Answer

The answer of Certain § 501(c)(3) exempt organizations are permitted...

Question 16

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.

Accepted Answer

The statement is true. 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, but are not imposed on exempt organizations classified as public charities.

Question 17

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

Accepted Answer

§ 501(c)(3) organizations are allowed to engage in some lobbying, but there are strict limits on the amount of lobbying activities they can conduct without jeopardizing their tax-exempt status, unlike C corporations which do not have such restrictions.

Question 18

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

Accepted Answer

The answer of An exempt entity in no circumstance is...

Question 19

A church is one of the types of exempt organizations.

Accepted Answer

A church is recognized as an exempt organization under section 501(c)(3) of the Internal Revenue Code. This means that churches are not required to pay federal income tax on their income and donations made to them may be tax-deductible for the donor.

Question 20

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

Accepted Answer

The entity can be engaged in a trade or business, but must not have a primary purpose of making a profit.

Quiz 15: Exempt Entities