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Exam 15: Exempt Entities

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Question 1

Multiple Choice

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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) Exempt from tax on unrelated business.
B) Inappropriate definition.
C) Exempt organization may be subject to the tax on unrelated business income.
D) Annual information return of an exempt organization that is required to file a return and which is not a private foundation.
E) Appropriate definition.
F) Annual information return of a private foundation.

G) B) and E)
H) C) and E)

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Question 2

Multiple Choice

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

A) Private foundations are subject to the unrelated business income tax.
B) Bingo games are not subject to the unrelated business income tax if they are conducted by an exempt organization.
C) The exchange or rental of membership lists with other exempt and nonexempt organizations is not an unrelated trade or business.
D) All of the above statements are correct.
E) None of the above statements is correct.

F) C) and D)
G) B) and D)

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Question 3

True/False

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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.

To what types of organizations does the UBIT apply?

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

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax only if the exempt organization is a private foundation.

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.

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 failure to distribute adequate amounts of income

Match the following statements. -Unrelated business income is generally that derived from the unrelated trade or business, reduced by the deductions directly connected with the conduct of the unrelated trade or business.

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

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.

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

Match the following statements. -Form 990-PF.

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

Match the following tax forms. -Form 1024

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

Discuss benefits for which an exempt organization may be eligible, other than exemption from Federal income tax.

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

Which of the following is not an example of an exempt organization?

George is running for mayor of Culpepper. The members of Third Church adamantly oppose his candidacy. They would like to run a political advertisement in the local newspaper opposing his candidacy. The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George; it does not support his opponent.