Question 1

Match the following tax forms.
-Form 1023

Accepted Answer

Form 1023 is specifically used by organizations seeking recognition of exemption under Section 501(c)(3) of the Internal Revenue Code, which pertains to charitable, religious, educational, scientific, and literary organizations, among others.

Question 2

The Dispensary is a pharmacy that is part of a § 501(c)(3) hospital. Its primary mission is to dispense medicines for hospital patients. In addition, the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital. It does this for the dual purpose of convenience to the former patients (i.e., the closest pharmacy is six miles away) and to ensure that the former patients receive the medicines that have been prescribed for them.
The Dispensary carries out the policy of the hospital board that no more than 25% of its gross revenues come from former-patient medicine sales. If necessary, in December of each year, sales to former patients are curtailed to ensure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year. $\begin{array} { l  } 
 \text {Medicine dispensed to hospital patients }&\$900,000\
 \text {Medicine sales to former patients }&100,000\
\end{array}$
 Calculate the amount of The Dispensary's unrelated business income.

Accepted Answer

The answer of The Dispensary is a pharmacy that is...

Question 3

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

Accepted Answer

The answer of Well, Inc., a private foundation, makes a...

Question 4

Match the following statements.
-Bingo games

Accepted Answer

Bingo games are considered an unrelated trade or business if they can legally be conducted by for-profit entities, indicating that the activity is competitive with commercial businesses and therefore not inherently related to the organization's exempt purpose.

Question 5

All of the stock of Hot Dog, Inc., a fast-food franchise operating in nine southeastern states, is owned by Winsome 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 Winsome America?

b. How would your answer ina. change if Hot Dog distributes $8 million to Winsome, rather than $5 million?

Accepted Answer

The answer of All of the stock of Hot Dog,...

Question 6

Match the following tax forms.
-Form 990-PF

Accepted Answer

Form 990-PF is specifically used by private foundations to report their income, expenses, and net assets to the IRS, hence it is known as the "Return of Private Foundation."

Question 7

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year. $$\begin{array} { l r } 
\text { General public for services rendered } & \$ 22,000 \
\text { Governmental unit A for services rendered } & 30,000 \
\text { Governmental unit B for services rendered } & 3,000 \
\text { Governmental unit C for services rendered } & 8,000 \
\text { Gross investment income } & 19,000
\end{array}$$ Contributions from individual disqualified persons 18,000
Is Assist, Inc., classified as a private foundation? Explain.

Accepted Answer

The answer of Assist, Inc., a § 501(c)(3) organization, receives...

Question 8

Faith Church, a § 501(c)(3) organization, operates a bingo game two times each week to raise money to support the youth activities of the church. For the current year, net proceeds from the bingo game are $900,000.
a.
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where for-profit bingo games are illegal and where the bingo game is legal for exempt entities.
b.
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where bingo games are legal for both for-profit and exempt entities.

Accepted Answer

The answer of Faith Church, a § 501(c)(3) organization, operates...

Question 9

First Americans, Inc., a § 501(c)(3) organization, operates a museum that 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: $\begin{array}{lr}
\text { Admission fees } & \$ 700,000 \
\text { Endowment income } & 75,000 \
\text { Gift shop net income } & 300,000 \
\text { Contributions } & 100,000
\end{array}$ 
a. The only potential source of UBI for First Americans, Inc., is the gift shop net income of $300,000. However, since the individuals performing substantially all the work of the gift shop do so without compensation (i.e., they are volunteers), the gift shop net income of $300,000 is not classified as unrelated business income.
a. Determine the amount of First Americans' unrelated business income (UBI).
b. Determine the amount of First American's unrelated business income tax (UBIT).

Accepted Answer

The answer of First Americans, Inc., a § 501(c)(3) organization,...

Question 10

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.

Accepted Answer

The answer of Spirit, Inc., a § 501(c)(3) organization, is...

Question 11

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.
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.

Accepted Answer

The answer of Miracle, Inc., is a § 501(c)(3) organization...

Question 12

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 supported by reasonable cause. Calculate the amount of the excise tax (first-level tax only) imposed under the intermediate sanctions provision.

Accepted Answer

The answer of Medical, Inc., a § 501(c)(3) exempt organization,...

Question 13

Midnight Basketball, Inc., an exempt entity that organizes and conducts basketball games for youths ages 18-25, receives a $20,000 contribution from Brown Shoe Company. Midnight agrees to put Brown's logo on the cover of its monthly newsletter.
a. Is the contribution unrelated business income to Midnight?
b. Assume that instead of putting Brown's logo on the cover of its newsletter, Midnight agrees to include a statement in the newsletter that youth playing in the games conducted by Midnight wear shoes manufactured only by Brown. Is the contribution unrelated business income to Midnight?
b. change if the amount of the payment was $7,500 instead of $20,000?
c. Would your answer in

Accepted Answer

The answer of Midnight Basketball, Inc., an exempt entity that...

Question 14

Match the following statements.
-Branded tote bags

Accepted Answer

Low-cost items distributed by a nonprofit are not considered unrelated trade or business activities, as they are often used for promotional purposes and do not generate significant income.

Question 15

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.

Accepted Answer

The answer of Help, Inc., a tax-exempt organization, incurs lobbying...

Question 16

Rattler, Inc., an exempt organization, trains disabled individuals to design web pages. Rather than hold a traditional graduation exercise, the graduates compete in a web design contest. Such activities are held four times each year. An admission fee of $10 is charged to the general public to attend the contest. Eight hundred people attended the contest this year, and prizes of $2,000 were given to the top three graduates. Calculate the amount of Rattler's unrelated business income from this activity.

Accepted Answer

The answer of Rattler, Inc., an exempt organization, trains disabled...

Question 17

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.

Accepted Answer

The answer of Restful, Inc., a § 501(c)(3) exempt organization,...

Question 18

Match the following statements.
-Corporate sponsorship payments

Accepted Answer

Corporate sponsorship payments are considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events, as this implies a direct benefit tied to the commercial success of the event.

Question 19

Match the following tax forms.
-Form 1024

Accepted Answer

Form 1024 is used by organizations to apply for recognition of exemption under Section 501(a) of the Internal Revenue Code, other than those applying for 501(c)(3) status (which use Form 1023).

Question 20

Match the following statements.
-Membership lists

Accepted Answer

Renting or exchanging membership lists with another exempt organization is not considered an unrelated trade or business.

Quiz 23: Exempt Entities

Match the following tax forms. -Form 1023

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

Match the following statements. -Bingo games

Match the following tax forms. -Form 990-PF

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.

Match the following statements. -Branded tote bags

Match the following statements. -Corporate sponsorship payments

Match the following tax forms. -Form 1024

Match the following statements. -Membership lists