Question 1

Which of the following statements is correct?
A) No exempt organizations can engage in any lobbying activities.
B) Certain exempt organizations can elect to engage in lobbying activities on a limited basis.
C) Churches can engage in lobbying activities on an unlimited basis because of the separation of church and state provision.
D) Only b. and c. are correct.
E) Only a. and c. are correct.

Accepted Answer

Certain exempt organizations, such as 501(c)(3) organizations, can elect to engage in lobbying activities on a limited basis as long as it does not constitute a substantial part of their activities. Churches, which are also exempt organizations, are subject to the same restrictions on lobbying activities as other exempt organizations. There is no provision in the US Constitution that allows churches to engage in lobbying activities on an unlimited basis. Therefore, option C is incorrect. Option A is also incorrect because certain exempt organizations are permitted to engage in lobbying activities on a limited basis.

Question 2

Which of the following activities, whose proceeds benefit an exempt organization, are subject to the feeder organization rules?
A) A weekly raffle operated by paid employees.
B) A car wash operated on Saturdays by volunteers.
C) A yard sale of donated clothes.
D) A thrift shop run by volunteers.
E) None of the above is subject to the feeder organization rules.

Accepted Answer

The feeder organization rules apply to activities that are conducted by a taxable entity that benefits an exempt organization. In option A, the weekly raffle is operated by paid employees, indicating that it is likely run by a taxable entity. Therefore, it is subject to the feeder organization rules. Options B, C, and D all involve activities run by volunteers or where donated items are sold, indicating that they are likely not operated by a taxable entity and therefore not subject to the feeder organization rules. Therefore, the answer is A.

Question 3

Which of the following are exempt organizations to which contributions made are eligible for the charitable contribution deduction?
A) National Basketball Association (NBA).
B) Red Cross.
C) American Institute of CPAs (AICPA).
D) Only b. and c.
E) a., b., and c.

Accepted Answer

The answer of Which of the following are exempt organizations...

Question 4

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 tax rates apply in calculating the amount of the tax liability.
E) None of the above is correct.

Accepted Answer

Intermediate sanctions are penalties imposed on tax-exempt organizations and their insiders (disqualified persons) for engaging in excess benefit transactions. The IRS can impose a first-level tax on the disqualified person who received the excess benefit and a second-level tax on the organization if it did not correct the transaction or take appropriate steps to prevent it. Corporate tax rates do not apply, and intermediate sanctions are not self-assessing. The excise tax is only imposed on the exempt organization, not on disqualified persons.

Question 5

Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?
A) Attempt to subject all or part of the organization's income to Federal income tax.
B) Revoke the exempt status of the organization.
C) Impose intermediate sanctions in the form of excise taxes.
D) Only a. and b.
E) a., b., and c.

Accepted Answer

The IRS has the option to attempt to subject all or part of the organization's income to Federal income tax, revoke the exempt status of the organization, or impose intermediate sanctions in the form of excise taxes. All three options are available to the IRS in dealing with an exempt organization entering into prohibited transactions.

Question 6

Rose, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $145,000 during the taxable year. Exempt purpose expenditures are $500,000. If Rose makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:
A) $0.
B) $7,250.
C) $11,250.
D) $36,250.
E) Some other amount.

Accepted Answer

Since Rose, Inc. has made the election under § 501(h), the tax liability resulting from lobbying expenditures is determined using the § 501(h) expenditure test. Under this test, the tax liability is the lesser of 20% of the lobbying expenditures ($29,000) or the amount by which the lobbying expenditures exceed the § 501(h) lobbying ceiling amount. For 2020, the lobbying ceiling amount is 150% of the organization's exempt purpose expenditures, which is $750,000 for Rose, Inc. Therefore, the excess lobbying expenditures over the ceiling amount are $145,000 - $750,000 = -$605,000, which is less than zero. Thus, the tax liability resulting from lobbying is $11,250, which is 20% of the lobbying expenditures.

Question 7

Which of the following qualify as exempt organizations?
A) Federal and related agencies.
B) Religious, charitable, and educational organizations.
C) Civic leagues.
D) Domestic fraternal societies (e.g., the Eagles Club).
E) All of the above can be exempt from tax.

Accepted Answer

All the listed organizations can qualify as exempt organizations under the Internal Revenue Code, provided they meet specific requirements.

Question 8

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

Accepted Answer

The answer of All exempt organizations which are subject to...

Question 9

A church is required to obtain IRS approval for its exempt status if its annual gross receipts exceed $25,000.

Accepted Answer

Churches are automatically exempt from federal income tax and are not required to apply for exempt status, regardless of the amount of their annual gross receipts.

Question 10

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) American Federation of Teachers (a teachers' union).
E) All of the above can be exempt from tax.

Accepted Answer

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

Question 11

Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.

Accepted Answer

Both personal property rental income and real property rental income are subject to the unrelated business income tax if they are earned by a tax-exempt organization as unrelated business income.

Question 12

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

Accepted Answer

The answer of If the unrelated business income of an...

Question 13

The due date for both Form 990 (Return of Organization Exempt from Income Tax) and Form 990-PF (Return of Private Foundation) is the fifteenth day of the fifth month after the end of the taxable year.

Accepted Answer

This is correct as per the instructions provided by the Internal Revenue Service (IRS). Both Form 990 and Form 990-PF are due on the fifteenth day of the fifth month following the end of the tax year. However, extensions may be granted by the IRS upon request.

Question 14

Which of the following are organizations exempt under § 501(c)(3)?
A) Girl Scouts of America.
B) Washington and Lee University.
C) Veterans of Foreign Wars (VFW).
D) Only a. and b. are § 501(c)(3) organizations.
E) All of the above are § 501(c)(3) organizations.

Accepted Answer

The Girl Scouts of America and Washington and Lee University are examples of organizations exempt under § 501(c)(3), while the Veterans of Foreign Wars (VFW) is not exempt under this section. Therefore, only a. and b. are § 501(c)(3) organizations.

Question 15

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax only if the exempt organization is a private foundation.

Accepted Answer

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax for any exempt organization, not just private foundations.

Question 16

If personal property is leased with real property and more than 80% of the rent income under the lease is from personal property, all of the rent income is subject to the unrelated business income tax.

Accepted Answer

The answer of If personal property is leased with real...

Question 17

Unless the "widely available" provision is satisfied, a § 501(c)(3) exempt organization (excluding churches and private foundations) must make copies of the following available to the general public: Form 990 (Return of Organization Exempt from Income Tax) and Form 1023 [Application for Recognition of Exemption under § 501(c)(3)] or Form 1024 [Application for Recognition of Exemption under § 501(a)].

Accepted Answer

According to the IRS, unless the "widely available" provision is satisfied, a § 501(c)(3) exempt organization (excluding churches and private foundations) must make copies of Form 990 and either Form 1023 or Form 1024 available to the general public.

Question 18

Even though a church is not required to obtain IRS approval of its exempt status, it still must file Form 990 (Return of Organization Exempt from Income Tax) annually.

Accepted Answer

Churches are actually exempt from filing Form 990 annually, as they are considered automatically tax-exempt under the law. However, they may choose to file Form 990 voluntarily as a way to demonstrate transparency and accountability to their members and the public.

Question 19

For purposes of the unrelated business income tax, debt-financed property is all property of the exempt organization that is held to produce income and on which there is acquisition indebtedness.

Accepted Answer

The answer of For purposes of the unrelated business income...

Question 20

Which of the following is a requirement for exempt status?
A) The organization does not exert political influence.
B) The organization has not been subject to intermediate sanctions for the past 24 months.
C) The organization serves some type of common good.
D) Only a. and c.
E) a., b., and c.

Accepted Answer

Exempt status requires that the organization serves some type of common good, but there is no requirement that they cannot exert political influence. Additionally, there is no requirement related to intermediate sanctions. Therefore, only choices a and c are required for exempt status.

Quiz 15: Exempt Entities

Which of the following statements is correct?

Which of the following activities, whose proceeds benefit an exempt organization, are subject to the feeder organization rules?

Which of the following are exempt organizations to which contributions made are eligible for the charitable contribution deduction?

Which of the following statements regarding intermediate sanctions is correct?

Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?

Which of the following qualify as exempt organizations?