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Exam 15: Exempt Entities

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Question 1

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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) Private foundations.
D) None of these entities must file Form 990.

E) None of the above
F) All of the above

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Question 2

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

A) True
B) False

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Question 3

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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.

Support the Child, Inc., a § 501(c)(3) organization, provides clothing for the children of disabled, low-income taxpayers. All of the clothes are received as contributions from individuals or from a wholly-owned, for-profit subsidiary (Sales, Inc.), which is in the retail clothing business (i.e., clothing that has been in inventory for over 120 days is transferred to Support the Child for distributions to qualified individuals). In addition to the clothing, Sales distributes 75% of its net income each year to Support the Child.

An activity is not an unrelated trade or business for purposes of the unrelated business income tax (UBIT) unless it is profitable.

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 one full-time employee (the manager) and 50 volunteers. None of the volunteers works more than 15 hours per week. Which of the following statements is correct?

In calculating unrelated business taxable income, the exempt organization is permitted to deduct only the charitable contributions associated with the unrelated trade or business.

Which of the following statements regarding the disclosure Regulations is correct?

Exempt organizations which are appropriately classified as private foundations include churches, educational institutions, and charitable organizations receiving a major portion of their support from the general public or the U.S., a state, or a political subdivision thereof.

Loyal, Inc., is a §501(c)(3) organization that is not classified as a private foundation. During the current year, it is subject to intermediate sanctions. What other options does the IRS have in dealing with an exempt organization engaging in prohibited transactions?

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

Which of the following statements regarding low-cost articles is correct?

To satisfy the broadly supported provision to avoid classification as a private foundation, the exempt organization must satisfy both an external support test and an internal support test. Under the internal support test, more than one-third of the exempt organization's support for the taxable year must come from gross investment income and unrelated business taxable income.

Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign. An executive, who recently completed an executive MBA degree program, recommends that personal address labels be included as an additional way to motivate the potential donor to contribute. The value of these labels is $9.00 per potential donor. What is the effect of the inclusion of the address labels on Watch's unrelated business income?

Theater, Inc., an exempt organization, owns a printing company, Printers, Inc., which remits 85% of its profits to Theater, Inc. Since Printers remits at least 85% of its profits to Theater, neither Theater, Inc., nor Printers, Inc., must pay income tax on this $85,000 ($100,000 ´ 85%).

An exempt organization that is eligible to elect under § 501(h) to engage in lobbying activities on a limited basis incurs no tax liability from lobbying, if the lobbying expenditures for the tax year do not exceed the lobbying expenditures ceiling.

The excise tax that is imposed on private foundations for making jeopardizing investments is imposed because the foundation has made speculative investments that put the foundation's income at risk.

Woeful, Inc., a tax-exempt organization, leases a building and machinery to Purple Partnership. The rental income from the building is $180,000, with related expenses of $70,000. The rental income from the machinery is $12,000, with related expenses of $3,000. What adjustment must be made to net unrelated business income?

Which of the following qualify as exempt organizations?

To maintain exempt status, an organization must do which of the following: