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Exam 23: Exempt Entities

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Question 1

True/False

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

A) True
B) False

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Question 2

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A museum's lobbying nontaxable amount is $600,000. Its grass roots nontaxable amount is:

A) $600,000.
B) $300,000.
C) $150,000.
D) $0.

E) C) and D)
F) A) and C)

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Question 3

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Some of the excise taxes that may be imposed on private foundations may be imposed on both the private foundation and the foundation manager.

Plus Inc. is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is the fifteenth day of the third month after the end of the taxable year.

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 three graduates. Calculate the amount of Rattler's unrelated business income from this activity.

Federal agencies exempt from Federal income tax under § 501(c)(1) are not subject to the unrelated business income tax (UBIT).

Match the following tax forms. -Form 1023

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year. $\begin{array} { l r } \text { General public for services rendered } & \$ 22,000 \\\text { Governmental unit A for services rendered } & 30,000 \\\text { Governmental unit B for services rendered } & 3,000 \\\text { Governmental unit C for services rendered } & 8,000 \\\text { Gross investment income } & 19,000\end{array}$ Contributions from individual disqualified persons 18,000 Is Assist, Inc., classified as a private foundation? Explain.

Garden, Inc., a qualifying § 501(c) (3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

Give an example of the indicated types of exempt organizations. -§ 501(c) (3) organization

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 six full-time, paid employees. Which of the following statements is correct?

Match the following statements. -Bingo games

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

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

Which of the following statements is correct regarding the unrelated business income tax (UBIT) ?

First Americans, Inc., a § 501(c)(3) organization, operates a museum that 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: $\begin{array}{lr}\text { Admission fees } & \$ 700,000 \\\text { Endowment income } & 75,000 \\\text { Gift shop net income } & 300,000 \\\text { Contributions } & 100,000\end{array}$ a. The only potential source of UBI for First Americans, Inc., is the gift shop net income of $300,000. However, since the individuals performing substantially all the work of the gift shop do so without compensation (i.e., they are volunteers), the gift shop net income of $300,000 is not classified as unrelated business income. a. Determine the amount of First Americans' unrelated business income (UBI). b. Determine the amount of First American's unrelated business income tax (UBIT).

The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed on exempt organizations classified as private foundations. The taxes are not imposed on exempt organizations classified as public charities.

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

Match the following tax forms. -Form 990