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Exam 23: Exempt Entities

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Question 81

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One of the requirements for an exempt organization being classified as an unrelated trade or business is the "not substantially related" requirement. That is, the trade or business is not substantially related to the exempt purpose of the organization. How can an exempt organization avoid satisfying this requirement?

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To avoid satisfying this requirement, th...

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Question 82

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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 excise taxes.
D) Only a. and b.
E) a., b., and c.

F) A) and C)
G) A) and B)

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Question 83

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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 one­third of the exempt organization's support for the taxable year must come from gross investment income and unrelated business taxable income.

Which of the following are qualified corporate sponsorship payments?

How can an exempt organization, otherwise classified as a private foundation, become a public charity?

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000. $\begin{array}{lr}\text { Dividend income } & \$ 12,000 \\\text { Interest income } & 6,000 \\\text { Royalty income } & 15,000 \\\text { Rent income from equipment } & 25,000\end{array}$ The only expenses incurred associated with these items are rental expenses (which includes depreciation of $10,000) of $15,000. Calculate City, Inc.'s UBTI.

Engaging in a prohibited transaction can result in an exempt organization being subject to Federal income tax, but cannot cause it to lose its exempt status unless the exempt organization repeats the prohibited transaction.

Robin, Inc., an exempt organization, acquired a building for $400,000 which it will lease to ABC, Inc., for $40,000 annually. To finance the acquisition of the building, Robin secures a mortgage on it of $250,000. Advise Robin as to whether it has any unrelated debt-financed income or deductions.

Medical, Inc., a § 501(c)(3) exempt organization, engages in an excess benefit transaction. 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.

Define "trade or business" for purposes of the unrelated business income tax (UBIT).

Define a private foundation.

Give an example of the indicated types of exempt organizations. -§ 501(c) (4) civic league

Which of the following statements regarding the unrelated business income tax is not correct?

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.

Which of the following statements is incorrect?

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

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 $9.95 per potential donor. What is the effect of the inclusion of the address labels on Watch's unrelated business income?

Midnight Basketball, Inc., an exempt organization that organizes and conducts basketball games for youths ages 10-13, receives a $20,000 contribution from Brown Shoe Company. Midnight agrees to put Brown's logo on the cover of its monthly newsletter. a. Is the contribution unrelated business income to Midnight? b. Assume that instead of putting Brown's logo on the cover of its newsletter, Midnight agrees to include a statement in the newsletter that youth playing in the games conducted by Midnight wear only shoes manufactured by Brown. Is the contribution unrelated business income to Midnight? c. Would your answer in b. change if the amount of the payment was $7,500 instead of $20,000?

For purposes of the unrelated business income tax (UBIT), a trade or business consists of any activity conducted for the production of income through the sale of merchandise, or from the performance of services for which profits have been earned during at least two of the five previous years.

A church is one of the types of exempt organizations.