Question 1

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 6 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 assure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year.
  
Calculate the amount of The Dispensary's unrelated business income.

Accepted Answer

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

Question 2

Match the following statements.
a. Exempt from tax on unrelated business.
b. Inappropriate definition.
c. Exempt organization may be subject to the tax on unrelated business income.
d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
e. Appropriate definition.
f. Annual information return of a private foundation.
-Form 990-PF.

Accepted Answer

The answer of Match the following statements.
a. Exempt from tax...

Question 3

Match the following statements.
a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items".
b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events
c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. 
d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business.
-Corporate sponsorship payments

Accepted Answer

The answer of Match the following statements.
a. Distribution of such...

Question 4

Match the following tax forms.
a. Return of Private Foundation.
b. Application for Recognition of Exemption under § 501(c)(3).
c. Return of Organization Exempt from Income Tax.
d. Application for Recognition of Exemption under § 501(a).
-Form 990-PF

Accepted Answer

The answer of Match the following tax forms.
a. Return of...

Question 5

All of the stock of Hot Dog, Inc., a fast food franchise operating in 9 southeastern states, is owned by Welcome 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 Welcome America?
b. How would your answer in a. change if Hot Dog distributes $8 million to Welcome America, rather than $5 million?

Accepted Answer

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

Question 6

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 3 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 7

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 8

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year.

Accepted Answer

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

Question 9

Match the following tax forms.
a. Return of Private Foundation.
b. Application for Recognition of Exemption under § 501(c)(3).
c. Return of Organization Exempt from Income Tax.
d. Application for Recognition of Exemption under § 501(a).
-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 10

Match the following statements.
a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items".
b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events
c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. 
d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business.
-Membership lists

Accepted Answer

The answer of Match the following statements.
a. Distribution of such...

Question 11

Match the following statements.
a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items".
b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events
c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. 
d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business.
-Branded calendars

Accepted Answer

The answer of Match the following statements.
a. Distribution of such...

Question 12

Match the following tax forms.
a. Return of Private Foundation.
b. Application for Recognition of Exemption under § 501(c)(3).
c. Return of Organization Exempt from Income Tax.
d. Application for Recognition of Exemption under § 501(a).
-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 13

Match the following tax forms.
a. Return of Private Foundation.
b. Application for Recognition of Exemption under § 501(c)(3).
c. Return of Organization Exempt from Income Tax.
d. Application for Recognition of Exemption under § 501(a).
-Form 990

Accepted Answer

The answer of Match the following tax forms.
a. Return of...

Question 14

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 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

First Americans, Inc., a § 501(c)(3) organization, operates a museum which 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:
  
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 17

Match the following statements.
a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items".
b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events
c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. 
d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business.
-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 18

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 19

Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation 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 20

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 due to reasonable cause. Calculate the amount of the excise tax (first-level tax) imposed under the intermediate sanctions provision.

Accepted Answer

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

Quiz 23: Exempt Entities

Match the following tax forms. a. Return of Private Foundation. b. Application for Recognition of Exemption under § 501(c)(3). c. Return of Organization Exempt from Income Tax. d. Application for Recognition of Exemption under § 501(a). -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.

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year.

Match the following tax forms. a. Return of Private Foundation. b. Application for Recognition of Exemption under § 501(c)(3). c. Return of Organization Exempt from Income Tax. d. Application for Recognition of Exemption under § 501(a). -Form 1024

Match the following tax forms. a. Return of Private Foundation. b. Application for Recognition of Exemption under § 501(c)(3). c. Return of Organization Exempt from Income Tax. d. Application for Recognition of Exemption under § 501(a). -Form 1023

Match the following tax forms. a. Return of Private Foundation. b. Application for Recognition of Exemption under § 501(c)(3). c. Return of Organization Exempt from Income Tax. d. Application for Recognition of Exemption under § 501(a). -Form 990

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