Question 1

Entities that are tax-exempt under IRS Section 501(c)(3)are prohibited from having surpluses (revenues exceed expenses).

Accepted Answer

Entities that are tax-exempt under IRS Section 501(c)(3) may have surpluses, but the surplus must be used for the organization's exempt purposes and cannot be distributed to individuals or private shareholders.

Question 2

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 25 percent of federal funds expended by the auditee.

Accepted Answer

Major programs are determined on a risk-based approach not by size. The auditor is required to express an opinion on compliance for major programs, which generally must add up to 50% of the federal funds expended by the auditee. This percentage is reduced to 25% if the auditee is determined by the auditor to be a low-risk auditee.

Question 3

Unrelated Business Income Tax is an excise tax,applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant.

Accepted Answer

Unrelated Business Income Tax is income tax that are required to pay on income generated from any trade or business activities unrelated to the entity's tax-exempt purposes. Unrelated business income is taxed at the corporate rate.

Question 4

Entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

Accepted Answer

Form 990-N, the electronic postcard, is available for tax-exempt not-for-profits with annual gross receipts of $50,000 or less. It requires only eight pieces of information.

Question 5

If a tax-exempt organization is found by the IRS to have paid unreasonable benefits,the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Accepted Answer

This is true according to the Internal Revenue Code section 4958. It is known as the "intermediate sanction" for excess benefit transactions.

Question 6

Tax-exempt organizations are required to disclose the compensation of its officers,directors,trustees,highest paid employees and independent contractors in the Form 990.

Accepted Answer

Tax-exempt organizations are required to disclose the compensation of its officers, directors, trustees, highest paid employees, and independent contractors in the Form 990. This is mandated by the IRS and is intended to increase transparency and accountability in nonprofit organizations.

Question 7

The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies,upon request,of the three most recent annual form 990s.

Accepted Answer

According to the Taxpayer Bill of Rights, tax-exempt organizations are required to provide copies, upon request, of the three most recent annual form 990s.

Question 8

In a disclaimer of opinion,the auditor states that no opinion is being expressed.

Accepted Answer

In a disclaimer of opinion, the auditor explicitly states that no opinion is being expressed on the financial statements.

Question 9

The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

Accepted Answer

The classification of Net Assets for tax-exempt organizations are consistent with FASB (Financial Accounting Standards Board) standards for not-for-profit organizations.

Question 10

The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Accepted Answer

The Unrelated Business Income Tax is designed to level the playing field between tax-exempt organizations and for-profit businesses by requiring tax-exempt organizations to pay taxes on income generated from activities that are unrelated to their exempt purposes. This eliminates the advantage that tax-exempt organizations might otherwise have over commercial enterprises.

Question 11

Entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Accepted Answer

Form 990EZ is shorter than Form 990 and is available to tax-exempt not-for-profit s with annual gross receipts under $200,000 and total assets of less than $500,000.

Question 12

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $75,000 may file Form 990-N (electronic postcard).

Accepted Answer

Form 990-N, the electronic postcard, is available for tax-exempt not-for-profits with annual gross receipts of $50,000 or less. It requires only eight pieces of information.

Question 13

A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Accepted Answer

When the auditor is not independent, a disclaimer of opinion is the appropriate audit opinion.

Question 14

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Accepted Answer

According to the Uniform Guidance, if an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must account for at least 50 percent of federal funds expended by the auditee.

Question 15

Governmental Audit Reports are due five months after the end of the fiscal year.

Accepted Answer

The answer of Governmental Audit Reports are due five months...

Question 16

Churches must file a Form 990.

Accepted Answer

Churches and related associations are exempt from filing Form 990.

Question 17

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 90 percent of federal funds expended by the auditee.

Accepted Answer

Major programs are determined on a risk-based approach not by size. The auditor is required to express an opinion on compliance for major programs, which generally must add up to 50% of the federal funds expended by the auditee. This percentage is reduced to 25% if the auditee is determined by the auditor to be a low-risk auditee.

Question 18

Entities that are tax-exempt under Section 501(c)(3)of the Internal Revenue Code do not have to pay income taxes,even if some of their activities compete with commercial enterprises.

Accepted Answer

are required to pay tax at the corporate rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes. The purpose of this requirement is to eliminate advantages that have over profit-making organizations.

Question 19

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes.

Accepted Answer

This is known as the unrelated business income tax (UBIT) and is required by the IRS for tax-exempt organizations.

Question 20

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax exempt purpose.

Accepted Answer

This is known as unrelated business income tax (UBIT) and is a tax imposed on tax-exempt organizations for income generated from activities not related to their exempt purposes. The tax rate is the same as the corporate tax rate or trust tax rate, depending on the type of organization.

Quiz 13: Auditing, Tax-Exempt Organizations, and Evaluating Performance

Entities that are tax-exempt under IRS Section 501(c)(3)are prohibited from having surpluses (revenues exceed expenses).

Assuming an auditee is considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 25 percent of federal funds expended by the auditee.

Unrelated Business Income Tax is an excise tax,applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant.

Entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

If a tax-exempt organization is found by the IRS to have paid unreasonable benefits,the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Tax-exempt organizations are required to disclose the compensation of its officers,directors,trustees,highest paid employees and independent contractors in the Form 990.

The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies,upon request,of the three most recent annual form 990s.

In a disclaimer of opinion,the auditor states that no opinion is being expressed.

The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Beginning in 2012,entities that are tax-exempt under IRS Section 501(c)(3)with gross receipts less than $75,000 may file Form 990-N (electronic postcard).

A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 50 percent of federal funds expended by the auditee.

Governmental Audit Reports are due five months after the end of the fiscal year.

Churches must file a Form 990.

Assuming an auditee is not considered low-risk,the auditor is required to express an opinion on compliance on major programs,which must add up to 90 percent of federal funds expended by the auditee.

Entities that are tax-exempt under Section 501(c)(3)of the Internal Revenue Code do not have to pay income taxes,even if some of their activities compete with commercial enterprises.

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax-exempt purposes.

Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entity's tax exempt purpose.