Question 1

Not-for-profit organizations are required to file audited financial statements with all states in which they solicit contributions.

Accepted Answer

Not-for-profit organizations are not required to file audited financial statements with all states in which they solicit contributions. The requirements vary by state, with some states requiring audited financial statements only if the organization's revenue exceeds a certain threshold.

Question 2

A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a:
A) Public charity.
B) Private foundation.
C) Public foundation.
D) Voluntary health and welfare organization.

Accepted Answer

A public charity typically relies on donations from individuals and corporations to fund its activities, rather than investment income. Private foundations, on the other hand, are typically funded by a small number of individuals or families and have strict rules about how they can distribute their funds. Public foundations and voluntary health and welfare organizations are not commonly used terms in the United States tax code.

Question 3

A nongovernmental tax-exempt organization must complete a Form 990 and send it to the Internal Revenue Service:
A) Only if they have unrelated business income.
B) If they are not a religious organization, and have gross receipts of $5,000 or more each year.
C) If they have gross receipts of $1,000 or more each year.
D) Only if they are a private foundation, not a public charity.

Accepted Answer

Nongovernmental tax-exempt organizations that are not religious organizations are required to file a Form 990 if they have gross receipts of $5,000 or more each year. Religious organizations are exempt from this requirement.

Question 4

A not-for-profit typically has gross receipts of $4,500 or less each year. According to the IRS it would not have to file with the IRS to be considered tax-exempt under Sec. 501(c)(3).

Accepted Answer

According to the IRS, a not-for-profit organization with gross receipts of $4,500 or less each year is considered a tax-exempt organization and does not need to file with the IRS to be considered tax-exempt under Sec. 501(c)(3).

Question 5

A disqualified person is a person who has violated and been sanctioned under the Internal Revenue Code.

Accepted Answer

A disqualified person in the context of the Internal Revenue Code primarily refers to individuals or entities that have a significant influence over a tax-exempt organization, such as officers, directors, or substantial contributors, rather than someone who has been sanctioned for violating the code.

Question 6

A good measure of whether a not-for-profit organization is a "going concern" and can sustain its operations into the future is:
A) Total revenues divided by assets.
B) Percentage of unrestricted net assets to operating expenses.
C) Percentage of program expenses to total expenses.
D) Fund-raising expenses as a percentage of public support.

Accepted Answer

The percentage of unrestricted net assets to operating expenses is a good measure of whether a not-for-profit organization is a "going concern" because it shows the organization's ability to cover its operating expenses with its unrestricted net assets. A higher ratio indicates a stronger financial position and the ability to sustain operations into the future. A ratio of at least 6-12 months of operating expenses is considered healthy. The other options may provide some information about the organization's financial health, but they do not necessarily indicate its ability to sustain operations into the future.

Question 7

The organization Shelter the Needy is completing its Form 990 and it is trying to determine if it has unrelated business income on which it must pay taxes. Which of the following would be subject to unrelated business income taxes?
A) The Shelter sold art work it had received as a donation.
B) Volunteers raised several thousand dollars in a marathon sponsored for the benefit of the Shelter.
C) The Shelter earned revenues from the self-service laundry facilities it provides for the benefit of tenants of its low-income temporary housing facilities.
D) None of the items listed would be subject to unrelated business income taxes.

Accepted Answer

The activities listed (A, B, and C) are either related to the organization's exempt purpose, are volunteer-driven, or involve the sale of donated goods, all of which are generally excluded from unrelated business income tax (UBIT) according to IRS rules for nonprofits.

Question 8

The Internal Revenue Service may impose intermediate sanctions on all of the following transactions between a not-for-profit organization and its executive officer except:
A) Excessive compensation.
B) More than the fair rental value for property owned by the officer.
C) A bargain on the sale of assets.
D) Fringe benefits comparable to those given to all employees.

Accepted Answer

Fringe benefits comparable to those given to all employees are generally permitted and not subject to intermediate sanctions. A, B, and C are all potential transactions that can result in intermediate sanctions if they are deemed excessive or not at fair market value.

Question 9

The success of a not-for-profit organization is measured primarily by the amount of profits generated by the organization's activities.

Accepted Answer

A not-for-profit organization's success is not measured by profits generated, but rather by the impact it has in fulfilling its mission and achieving its goals. Nonprofits may generate revenue, but it is reinvested into the organization's programs and services rather than distributed as profits to shareholders or owners.

Question 10

A good measure that can be used to help assess whether a not-for-profit organization is spending too much on overhead, such as general and administrative expenses, is:
A) Percentage of unrestricted net assets to operating expenses.
B) Current ratio.
C) Total revenues divided by total expenses.
D) Percentage of program expenses to total expenses.

Accepted Answer

The percentage of program expenses to total expenses measures how much of an organization's expenses go directly towards its core programs or services, as opposed to overhead or other non-program expenses. A higher percentage of program expenses indicates that the organization is prioritizing its mission and utilizing its resources effectively, while a lower percentage may indicate that too much is being spent on administrative or other non-essential costs. Therefore, this is the best measure to assess whether a not-for-profit organization is spending too much on overhead.

Question 11

The lack of defined ownership for not-for-profit organizations creates control and reporting problems for not-for-profit managers.

Accepted Answer

Not-for-profit organizations are typically owned by the community they serve or a board of directors, rather than by individuals or shareholders. This lack of defined ownership can make it difficult for managers to make decisions, as they must navigate various stakeholders and opinions. It also creates challenges in terms of reporting and transparency, as there may not be a clear owner or ultimate decision-maker for the organization.

Question 12

Public disclosure rules require that a tax-exempt not-for-profit organization:
A) Make available a copy of its Form 990 to the public for a period of up to three years.
B) Post a copy of its articles of incorporation and by-laws on its website.
C) Provide a copy of the minutes to all board meetings to any person who requests the minutes within 90 days of the board meeting.
D) Make available a copy of its Form 990-T, but not its Form 990, to the public for a period of up to two years.

Accepted Answer

Public disclosure rules require that a tax-exempt not-for-profit organization make available a copy of its Form 990 to the public for a period of up to three years. This form contains detailed information about the organization's finances, activities, and governance.

B, C, and D are incorrect because they do not accurately reflect public disclosure requirements for tax-exempt not-for-profit organizations. While it may be beneficial for an organization to post its articles of incorporation and by-laws on its website (B) or provide copies of board meeting minutes to interested parties (C), these actions are not required by law. Additionally, Form 990-T is only required for certain tax-exempt organizations that have unrelated business income, and it is not typically made available to the public (D).

Question 13

The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is:
A) Rental of extra space in the building.
B) Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost.
C) Interest and dividend income on investments.
D) Gain on the sale of equipment no longer needed by the organization.

Accepted Answer

The regular sale of sweatshirts with the organization's logo at a price considerably above cost is not related to the organization's exempt purpose of providing immunizations. This activity generates income, which is likely to be considered unrelated business income subject to unrelated business income tax (UBIT). A, C, and D are not likely to be considered unrelated business income.

Question 14

A large not-for-profit organization expended $1,250,000 in direct lobbying during the current year. As long as the $1,250,000 did not exceed 2 percent of the organization's gross receipts, the amount is allowable according to the Internal Revenue Code.

Accepted Answer

The Internal Revenue Code imposes limits on the amount of lobbying expenditures a not-for-profit organization can make without jeopardizing its tax-exempt status. The 2 percent figure does not apply to allowable lobbying expenditures; instead, the IRS uses a substantial part test or an expenditure test (for those electing under section 501(h)) to determine the allowable amount, which is not simply capped at 2 percent of an organization's gross receipts.

Question 15

A program effectiveness ratio is helpful in assessing whether a not-for-profit is using its resources to accomplish its mission or goals.

Accepted Answer

A program effectiveness ratio compares the program expenses to the program accomplishments or outcomes, providing an objective measure of how well the organization is utilizing its resources to achieve its intended impact. It is a common tool used by not-for-profit organizations to evaluate and improve their programs.

Question 16

The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is:
A) Political influence.
B) Legislation.
C) Propaganda.
D) Lobbying.

Accepted Answer

Propaganda refers to information that is biased and often misleading or false, with the intention to promote a particular agenda or belief. It aims to influence opinions rather than presenting factual evidence. Political influence, legislation, and lobbying may also involve attempts to shape beliefs and opinions, but they do not necessarily rely on distorting the truth.

Question 17

Income, a not-for-profit organization, earns from a rental property on which it has a mortgage is subject to unrelated business income tax.

Accepted Answer

Income earned from a rental property on which a not-for-profit organization has a mortgage is considered unrelated business income and is subject to unrelated business income tax.

Question 18

Which of the following is a reason why a not-for-profit organization might fail to qualify for tax-exempt status?
A) It is operated primarily for the benefit of its members.
B) Its officers are paid excessive wages.
C) Its primary purpose is to promote the election of a senate candidate.
D) It has unrelated business income.

Accepted Answer

The promotion of political candidates or parties is not a permitted activity for tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code. Therefore, a not-for-profit organization whose primary purpose is to promote the election of a senate candidate will fail to qualify for tax-exempt status.

Answer: A and B
 Not-for-profit organizations that are operated primarily for the benefit of their members or whose officers are paid excessive wages will fail to qualify for tax-exempt status. These activities do not meet the criteria for charitable, religious, educational, scientific, or literary purposes as outlined in Section 501(c)(3) of the Internal Revenue Code.

Answer: D
 While not-for-profit organizations are allowed to have some business activities, any income generated from unrelated business activities is subject to unrelated business income tax (UBIT) and can jeopardize the organization's tax-exempt status if it becomes a substantial part of the organization's overall activities. Therefore, an organization with unrelated business income may fail to qualify for tax-exempt status.

Question 19

Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec. 501(c)(3)?
A) Beta Kappa Alpha Sorority.
B) Peaceful Dreams Cemetery Association.
C) Regional Association of Tree Trimmers.
D) Survivors of Breast Cancer Club.

Accepted Answer

Survivors of Breast Cancer Club is most likely to be tax-exempt under IRC Sec. 501(c)(3) because it is a charitable organization that provides support and services to a specific group of individuals who have survived breast cancer. Beta Kappa Alpha Sorority and Regional Association of Tree Trimmers are not likely to qualify as charitable organizations under 501(c)(3), and Peaceful Dreams Cemetery Association may be classified as a cemetery company, which does not qualify for tax exemption under 501(c)(3).

Question 20

Which of the following is not a True statement about tax-exempt organizations?
A) They must be organized to serve the charitable needs of the public at large.
B) They must first become a not-for-profit corporation or charitable trust.
C) They are permitted to do some political lobbying if guidelines are met.
D) Their unrelated business income is taxed at corporate income tax rates.

Accepted Answer

The answer of Which of the following is not a...

Quiz 13: Not-for-Profit Organizations—Regulatory, Taxation, and Performance Issues

Not-for-profit organizations are required to file audited financial statements with all states in which they solicit contributions.

A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a:

A nongovernmental tax-exempt organization must complete a Form 990 and send it to the Internal Revenue Service:

A not-for-profit typically has gross receipts of $4,500 or less each year. According to the IRS it would not have to file with the IRS to be considered tax-exempt under Sec. 501(c)(3).

A disqualified person is a person who has violated and been sanctioned under the Internal Revenue Code.

A good measure of whether a not-for-profit organization is a "going concern" and can sustain its operations into the future is:

The organization Shelter the Needy is completing its Form 990 and it is trying to determine if it has unrelated business income on which it must pay taxes. Which of the following would be subject to unrelated business income taxes?

The Internal Revenue Service may impose intermediate sanctions on all of the following transactions between a not-for-profit organization and its executive officer except:

The success of a not-for-profit organization is measured primarily by the amount of profits generated by the organization's activities.

A good measure that can be used to help assess whether a not-for-profit organization is spending too much on overhead, such as general and administrative expenses, is:

The lack of defined ownership for not-for-profit organizations creates control and reporting problems for not-for-profit managers.

Public disclosure rules require that a tax-exempt not-for-profit organization:

The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is:

A large not-for-profit organization expended $1,250,000 in direct lobbying during the current year. As long as the $1,250,000 did not exceed 2 percent of the organization's gross receipts, the amount is allowable according to the Internal Revenue Code.

A program effectiveness ratio is helpful in assessing whether a not-for-profit is using its resources to accomplish its mission or goals.

The term that means information skewed toward a particular belief with a tendency to have little or no factual basis is:

Income, a not-for-profit organization, earns from a rental property on which it has a mortgage is subject to unrelated business income tax.

Which of the following is a reason why a not-for-profit organization might fail to qualify for tax-exempt status?

Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec. 501(c) (3) ?

Which of the following is not a True statement about tax-exempt organizations?