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Exam 23: Exempt Entities

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Question 51

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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 are deductible by the donor.
D) Only b. and c.
E) a., b., and c.

F) None of the above
G) D) and E)

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Question 52

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Wonder, Inc., a § 501(c)(3) exempt organization, acquired all the stock of a for­profit corporation for $100,000. Wonder is a private foundation. The acquired corporation was not a related business. Calculate the tax on excess business holdings. Assume that corrective action is taken so that the additional tax does not apply.

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The initial tax on the private...

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Question 53

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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.

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 carefully 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. Medicine dispensed to hospital patients $900,000 Medicine sales to former patients 100,000 Calculate the amount of The Dispensary's unrelated business income.

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 and are not imposed on exempt organizations classified as public charities.

An exempt organization owns a building for which its adjusted basis is $100,000 at the beginning of the year and $90,000 at the end of the year. One-half of the ground floor is leased to a commercial venture for $10,000 per year. The remainder of the first floor and all of the second floor are used by the exempt organization in carrying out its mission. When the exempt organization constructed the building 20 years ago, it incurred a mortgage of $150,000. The final payment of this mortgage was made in December of the current year. The average acquisition indebtedness for the current year is $30,000. Determine to what extent the building is debt-financed property, the amount of debt-financed income, and the portion of debt-financed income that is treated as unrelated business income.

Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.

If personal property is leased with real property and more than 45% of the rent income under the lease is from personal property, all of the rent income is subject to the unrelated business income tax.

Which requirements must be satisfied for an exempt organization to be classified as an unrelated trade or business? Is being classified as an unrelated trade or business good or bad?

To be classified as a private foundation, the exempt status of an organization can be provided under either § 501(c)(1) or § 501(c)(3).

What are the common characteristics of organizations that receive exempt status?

Match the following statements. -The trade or business consists of selling merchandise, and substantially all of the merchandise has been received as gifts or contributions.

A corporate sponsorship payment that is contingent on attendance at a sporting event increases the amount of unrelated business income.

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?

Are organizations that qualify for exempt organization status completely exempt from Federal income taxation?

Unless the "widely available" provision is satisfied, a § 501(c)(3) exempt organization (excluding churches and private foundations) must make copies of the following available to the general public: Form 990 (Return of Organization Exempt from Income Tax) and Form 1023 [Application for Recognition of Exemption under § 501(c)(3)] or Form 1024 [Application for Recognition of Exemption under § 501(a)].

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

Revenue generated by an exempt organization from the distribution of low-cost items is not income from an unrelated trade or business.

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?

If an exempt organization conducts a trade or business that consists of either exchanging or renting to other exempt organizations the organization's donor or membership list, such trade or business is an unrelated trade or business.