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Exam 15: Exempt Entities

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Question 51

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For purposes of the unrelated business income tax (UBIT) , land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied. Which of the following is not included in the requirements?

A) The principal purpose of acquiring the land is for use (substantially all) in achieving the organization's exempt purpose.
B) The fair market value of the land is not over 50% of the fair market value of land presently owned by the exempt organization.
C) The use of the land by the exempt organization will begin within ten years of the acquisition date.
D) At the date the land is acquired, it is located in the neighborhood of other property of the organization for which substantially all the use is for achieving the organization's exempt purpose.
E) All of the above are requirements.

F) All of the above
G) A) and E)

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Question 52

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An exempt entity in no circumstance is subject to Federal income tax.

A) True
B) False

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Question 53

Multiple Choice

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Match the following statements -Form 990.

Match the following tax forms -Form 2758

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.

For each of the following taxes which are imposed on private foundations and/or Foundation Managers, match the appropriate initial tax or additional tax -Tax on excess business holdings

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

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

Arbor, Inc., an exempt organization, leases land, building, and machinery to a tenant for a 5-year period. The rent income for the land and building is $400,000 per year and that from the related machinery is $80,000 per year. Expenses incurred by Arbor for the land and building during the year are $60,000 and those for the machinery are $36,000. Net unrelated business income, which includes the above rental income and expenses, is $800,000. Calculate Arbor's unrelated business taxable income.

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.

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

Maroon, Inc., a tax-exempt organization, leases a building and equipment to Brown Partnership. The rental income from the building is $100,000 and from the equipment is $9,000. Rental expenses are $40,000 for the building and $4,000 for the equipment. What adjustment must be made to net unrelated business income?

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.

Match the following tax forms -Form 990-PF

Define average acquisition indebtedness with respect to debt-financed property.

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

If an exempt organization conducts a trade or business that is regularly carried on by the organization, it is subject to the unrelated business income tax (UBIT).

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000. 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.

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

Match the following statements -Private foundation