Question 1

Teal,Inc. ,is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?
A)An excise tax in the form of an initial tax at the rate of 5% may be imposed on Teal.
B)An excise tax in the form of an initial tax at the rate of 2.5% may be imposed on the foundation manager.
C)An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D)An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
E)None of the statements is correct.

Accepted Answer

According to the rules of private foundations, they must distribute at least 5% of their assets for charitable purposes each year. If they fail to do so, they are subject to an excise tax in the form of an additional tax at the rate of 100%. Therefore, option C is the correct choice. The other options are incorrect because the initial tax rates are either too low or do not apply to the situation described in the question.

Question 2

Tan,Inc. ,a tax-exempt organization,has $65,000 of net unrelated business income.Total charitable contributions (all associated with the unrelated trade or business)are $7,500.Assuming that the $7,500 was deducted in calculating net unrelated business income,what is Tan's unrelated business taxable income?
A)$57,500.
B)$65,250.
C)$66,000.
D)$72,500.
E)Some other amount.

Accepted Answer

To calculate the unrelated business taxable income, we need to start with the net unrelated business income and subtract any deductions that are directly connected to that income. In this case, the charitable contributions of $7,500 are associated with the unrelated trade or business, so they are deducted from the net unrelated business income of $65,000.

$65,000 - $7,500 = $57,500

Therefore, the unrelated business taxable income is $57,500. However, the question asks what the unrelated business taxable income would be assuming that the $7,500 was deducted in calculating net unrelated business income. This means we need to add the $7,500 back to the unrelated business taxable income we just calculated.

$57,500 + $7,500 = $65,000

Therefore, the unrelated business taxable income assuming the $7,500 was deducted in calculating net unrelated business income is $65,000, which corresponds to choice B.

Question 3

Which of the following is one of the requirements that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property,for purposes of the unrelated business income tax?
A)The principal purpose of acquiring the land is for investment.
B)The land is sold within ten years of the acquisition date in the organization's exempt purpose.
C)The land is located in the United States.
D)Only a.and b.
E)None of the above.

Accepted Answer

The answer of Which of the following is one of...

Question 4

Which of the following are consequences of tax-exempt status?
A)Not necessary to file a Federal income tax return.
B)Generally exempt from Federal income tax.
C)Contributions to the exempt organization may be deductible by the donor.
D)Only b.and c.
E)a. ,b. ,and c.

Accepted Answer

Tax-exempt status means that an organization is generally exempt from Federal income tax (option B) and contributions to the exempt organization may be deductible by the donor (option C). However, the organization may still be required to file a Federal income tax return (option A) depending on its annual gross receipts and other factors. Therefore, option A is not always a consequence of tax-exempt status.

Question 5

Swan,Inc. ,a tax-exempt organization,leases a building and equipment to ABC Corporation.The rental income from the building is $160,000 and from the equipment is $12,000.Rental expenses are $100,000 for the building and $11,000 for the equipment.What adjustment must be made to net unrelated business income?
A)$0.
B)($11,000).
C)($12,000).
D)($61,000).
E)Some other amount.

Accepted Answer

The answer of Swan,Inc. ,a tax-exempt organization,leases a building and...

Question 6

Blue,Inc. ,receives its support from the following sources.

Which of the following statements is correct?
A)Blue,Inc. ,is a private foundation because it satisfies the external support test and fails the internal support test.
B)Blue,Inc. ,is not a private foundation because it fails both the internal and external support tests.
C)Blue,Inc. ,is a private foundation because it satisfies both the external support test and the internal support test.
D)Blue,Inc. ,is not a private foundation because it satisfies both the external support test and the internal support test.
E)None of the statements is true.

Accepted Answer

The answer of Blue,Inc. ,receives its support from the following...

Question 7

For purposes of the unrelated business income tax (UBIT),land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied.Which of the following is not included in the requirements?
A)The principal purpose of acquiring the land is for use (substantially all)in achieving the organization's exempt purpose.
B)The fair market value of the land is not over 50% of the fair market value of land presently owned by the exempt organization.
C)The use of the land by the exempt organization will begin within ten years of the acquisition date.
D)At the date the land is acquired,it is located in the neighborhood of other property of the organization for which substantially all the use is for achieving the organization's exempt purpose.
E)All of the above are requirements.

Accepted Answer

The requirements include that the principal purpose of acquiring the land is for use in achieving the organization's exempt purpose, the use of the land by the exempt organization will begin within ten years of the acquisition date, and at the date the land is acquired, it is located in the neighborhood of other property of the organization for which substantially all the use is for achieving the organization's exempt purpose. However, the fair market value of the land is not a factor in determining whether it qualifies as debt-financed property.

Question 8

Which of the following statements regarding a private foundation is not correct?
A)Only certain exempt organizations are classified as private foundations.
B)A donor who makes a contribution to a private foundation has identical tax consequences as a donor who makes a contribution to a public charity.
C)A private foundation may be subject to certain excise taxes because it is a private foundation.
D)A church is not a private foundation.
E)All of the statements are correct.

Accepted Answer

A donor who makes a contribution to a private foundation does not have identical tax consequences as a donor who makes a contribution to a public charity. Contributions made to a private foundation are subject to lower percentage limitations and are not eligible for the same level of charitable deductions as contributions made to a public charity.

Question 9

Which of the following is not an excise tax that may be imposed on a private foundation?
A)Tax on jeopardizing investments.
B)Tax on self-dealing.
C)Tax on excessive foundation manager compensation.
D)Tax on excess business holdings.
E)All of these taxes may be imposed on a private foundation.

Accepted Answer

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

Question 10

Relevant factors in the unrelated business income tax (UBIT)rules for determining whether a trade or business is regularly carried on by an exempt organization do not include which of the following?
A)The proportion of the total revenue of the exempt organization raised by the activity.
B)The frequency of the activity.
C)The continuity of the activity.
D)The manner in which the activity is pursued.
E)All of the above are relevant factors.

Accepted Answer

The proportion of the total revenue of the exempt organization raised by the activity is not a relevant factor in determining whether a trade or business is regularly carried on by an exempt organization. Instead, the relevant factors are the frequency, continuity, and manner in which the activity is pursued.

Question 11

Which of the following requirements are among the three requirements that must be satisfied for an exempt organization to be subject to the unrelated business income tax?
A)The exempt organization conducts a trade or business.
B)The trade or business is substantially related to the exempt purpose of the organization.
C)The trade or business normally generates an annual profit of at least $25,000.
D)Only a.and c.
E)a. ,b. ,and c.

Accepted Answer

The answer of Which of the following requirements are among...

Question 12

Which of the following statements is correct?
A)A private foundation is,in general,exempt from Federal income tax.
B)A private foundation may be subject to certain types of Federal income tax.
C)If a broad public support test is satisfied,an exempt organization that otherwise would be classified as a private foundation is not classified as a private foundation.
D)Only b.and c.are correct.
E)a. ,b. ,and c.are correct.

Accepted Answer

All three statements are correct. Private foundations are generally exempt from Federal income tax, but may still be subject to certain types of Federal income tax. If a broad public support test is satisfied, an exempt organization that would otherwise be classified as a private foundation is not classified as a private foundation. Therefore, options a, b, and c are all correct.

Question 13

Which of the following statements are correct with respect to the unrelated business income tax?
A)Under certain circumstances,a corporate sponsorship payment can be classified as not being an unrelated trade or business.
B)Under certain circumstances,a casino game can be classified as not being an unrelated trade or business.
C)Under certain circumstances,the distribution of low-cost articles can be classified as not being an unrelated trade or business.
D)Only a.and c.are correct.
E)a. ,b. ,and c.all are correct.

Accepted Answer

Under certain circumstances, a corporate sponsorship payment and the distribution of low-cost articles can be classified as not being an unrelated trade or business. However, a casino game is unlikely to be classified as not being an unrelated trade or business under any circumstances.

Question 14

Third Church operates a gift shop in its parish house.The total income of the church is $800,000.Of this amount,$300,000 comes from offerings and $500,000 comes from the net income of the gift shop.The gift shop operations are conducted by five full-time employees.Which of the following statements is correct?
A)The $800,000 is unrelated business income.
B)The $500,000 of gift shop net income is unrelated business income.
C)The $300,000 is unrelated business income because the gift shop is a feeder organization.
D)None of the $800,000 is unrelated business income.
E)The unrelated business income tax does not apply to churches.

Accepted Answer

The answer of Third Church operates a gift shop in...

Question 15

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?
A)Debt incurred in acquiring or improving the property.
B)Debt incurred to enable the organization to carry out its exempt purpose.
C)Debt incurred to enable the exempt organization to acquire a feeder organization.
D)Only a.and b.
E)a. ,b. ,and c.

Accepted Answer

Acquisition indebtedness only consists of debt that was used to acquire or improve debt-financed property. Debt incurred for other purposes, such as to carry out an exempt purpose or acquire a feeder organization, does not count as acquisition indebtedness.

Question 16

Which of the following types of § 501(c)(3)organizations are not private foundations?
A)Hospitals.
B)Churches.
C)Colleges and universities.
D)Only a.and b.
E)a. ,b. ,and c.

Accepted Answer

Hospitals, churches, and colleges/universities are all exempt from being classified as private foundations under § 509(a). They are classified as public charities under § 170(b)(1)(A)(i), which allows them to receive a more favorable tax treatment and not be subject to the same restrictions as private foundations.

Question 17

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax)?
A)Federal agencies.
B)Churches.
C)Exempt organizations whose annual gross receipts do not exceed $25,000.
D)Private foundations.
E)None of these entities must file Form 990.

Accepted Answer

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

Question 18

Which of the following excise taxes are imposed on the private foundation because it engages in prohibited transactions?
A)Tax on investment income.
B)Tax on self-dealing.
C)Tax on failure to distribute income.
D)Only b.and c.
E)a. ,b. ,and c.

Accepted Answer

The private foundation will be subject to excise taxes on self-dealing and failure to distribute income as they are engaging in prohibited transactions. These taxes are imposed to discourage private foundations from using their resources for non-charitable purposes or to benefit individuals closely related to the foundation. The tax on investment income is a separate excise tax that is imposed on all private foundations, regardless of whether they engage in prohibited transactions. Therefore, the answer is option D, i.e., only b. and c.

Question 19

Which of the following statements is correct?
A)The unrelated business income tax (UBIT)does not apply to exempt organizations that receive broad public support.
B)The unrelated business income tax (UBIT)treats the tax-exempt entity as if it were subject to the corporate income tax on its unrelated business income.
C)Unrelated business income is income derived from activities not related to the exempt purpose of the exempt organization.
D)Only b.and c.are correct.
E)a. ,b. ,and c.are correct

Accepted Answer

The answer of Which of the following statements is correct?
A)The...

Question 20

Which of the following taxes that are imposed on private foundations is,effectively,an audit fee to defray IRS expenses?
A)Tax on self-dealing.
B)Tax on failure to distribute income.
C)Tax on taxable expenditures.
D)Only a.and c.
E)None of the above.

Accepted Answer

The answer of Which of the following taxes that are...

Quiz 15: Exempt Entities

Teal,Inc. ,is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?

Which of the following is one of the requirements that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property,for purposes of the unrelated business income tax?

Which of the following are consequences of tax-exempt status?

Blue,Inc. ,receives its support from the following sources. Which of the following statements is correct?

For purposes of the unrelated business income tax (UBIT) ,land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied.Which of the following is not included in the requirements?

Which of the following statements regarding a private foundation is not correct?

Which of the following is not an excise tax that may be imposed on a private foundation?

Relevant factors in the unrelated business income tax (UBIT) rules for determining whether a trade or business is regularly carried on by an exempt organization do not include which of the following?

Which of the following requirements are among the three requirements that must be satisfied for an exempt organization to be subject to the unrelated business income tax?

Which of the following statements is correct?

Which of the following statements are correct with respect to the unrelated business income tax?

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?

Which of the following types of § 501(c) (3) organizations are not private foundations?

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax) ?

Which of the following excise taxes are imposed on the private foundation because it engages in prohibited transactions?

Which of the following statements is correct?

Which of the following taxes that are imposed on private foundations is,effectively,an audit fee to defray IRS expenses?