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Exam 23: Exempt Entities

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Question 31

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Woeful,Inc.,a tax-exempt organization,leases a building and machinery to Purple Partnership.The rental income from the building is $180,000,with related expenses of $70,000.The rental income from the machinery is $12,000,with related expenses of $3,000.What adjustment must be made to net unrelated business income?

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The net rental income of $119,000 ($110,...

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Question 32

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

A) Debt incurred in acquiring or improving the property.
B) Debt incurred to enable the organization to carry out its exempt purpose.
C) Debt incurred to enable the exempt organization to acquire a feeder organization.
D) Only a. and b.
E) a., b., and c.

F) C) and D)
G) A) and D)

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Question 33

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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 one full-time employee (the manager) and 50 volunteers.None of the volunteers works more than 15 hours per week.Which of the following statements is correct?

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 also are 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. The building is not classified as debt-financed property if substantially all (at least 85%)of the use is for the achievement of the exempt purpose of the exempt organization.Since only 75% of the building's usage satisfies this requirement,25% of the building is classified as debt-financed property.

The League of Women Voters is a § 501(c)(3)organization.

Match the following tax forms.

An exempt organization that is eligible to elect under § 501(h)to engage in lobbying activities on a limited basis incurs no tax liability from lobbying,if the lobbying expenditures for the tax year do not exceed the lobbying expenditures ceiling.

Blue,Inc.,receives its support from the following sources. Which of the following statements is correct?

Which of the following are exempt organizations to which contributions made are eligible for the charitable contribution deduction?

Rose,Inc.,a qualifying § 501(c) (3) organization,incurs lobbying expenditures of $145,000 during the taxable year.Exempt purpose expenditures are $500,000.If Rose makes the election under § 501(h) to make lobbying expenditures on a limited basis,its tax liability resulting from the lobbying expenditures is:

Which of the following statements regarding exempt organization filing requirements is incorrect?

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

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?

What is the purpose of the unrelated business income tax?

Midnight Basketball,Inc.,an exempt organization that organizes and conducts basketball games for youths ages 10-13,receives a $50,000 contribution from Brown Shoe Company.Midnight agrees to put Brown's logo on the cover of its monthly newsletter.

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

Exempt organizations which are appropriately classified as private foundations include churches,educational institutions,and charitable organizations receiving a major portion of their support from the general public or the U.S.,a state,or a political subdivision thereof.

For purposes of the unrelated business income tax,debt-financed property is all property of the exempt organization that is held to produce income and on which there is acquisition indebtedness.

While the major objective of the Federal income tax law is to raise revenue,social considerations and economic objectives also affect the tax law.