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Exam 23: Exempt Entities

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Question 21

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Under what circumstances are bingo games not treated as an unrelated trade or business?

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A bingo game is not an unrelated trade o...

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Question 22

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What are intermediate sanctions and to what types of exempt organizations do they apply?

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Intermediate sanctions apply to so-calle...

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Question 23

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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?

An educational organization such as the College of William and Mary that is exempt under § 501(c)(3) cannot be classified as a private foundation if its only sources of revenue are from tuition and alumni contributions.

Which of the following are exempt organizations?

The excise tax imposed on a private foundation's investment income can be imposed as an initial (first­level) tax but cannot be imposed as an additional (second-level) tax.

Support the Pets, Inc., a § 501(c)(3) organization, provides pet food to humane societies. All of the pet food is received as contributions from individuals or from a wholly-owned, for-profit subsidiary (Sales, Inc.), which is in the retail pet food business (i.e., pet food that has been in inventory for over 120 days is transferred to Support the Pets for distributions to humane societies). In addition to the pet food, Sales distributes 75% of its net income each year to Support the Pets. a. Is Support the Pets or Sales, Inc., a feeder organization? b. How would your answer change if nearly all of the work of Support the Pets was done by volunteers?

The trade or business of selling merchandise where substantially all of the merchandise has been received as contributions or gifts is not subject to the unrelated business income tax, but is subject to the tax on feeder organizations.

Which exempt organizations are not required to file an annual Federal tax return?

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

The key factors in determining whether an exempt entity's income from a bingo game is unrelated trade or business income are whether substantially all the work is performed by volunteers and all of the prizes to be awarded are received as donations.

Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.

Faith Church, a § 501(c)(3) organization, operates a bingo game two times each week to raise money to support the youth activities of the church. For the current year, net proceeds from the bingo game are $900,000. a. Determine the tax consequences for Faith Church if the bingo game is conducted in a state where for-profit bingo games are illegal, and where the bingo game is legal for exempt entities. b. Determine the tax consequences for Faith Church if the bingo game is conducted in a state and locality where bingo games are legal for both for-profit and exempt entities.

For an exempt organization to be subject to the unrelated business income tax, the trade or business must not be substantially related to the exempt purpose of the organization.

A § 501(c)(3) organization exchanges its membership lists with another exempt organization. What are the Federal income tax consequences?

Which of the following statements are correct?

Which of the following statements is correct?

What is the purpose of the unrelated business income tax?

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.

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?