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Exam 23: Exempt Entities

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Question 41

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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.

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a. No. Help is not in danger of losing i...

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Question 42

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

A) Federal agencies.
B) Churches.
C) Exempt organizations whose annual gross receipts do not exceed $50,000.
D) Private foundations.
E) None of these entities must file Form 990.

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

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Question 43

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Give an example of the indicated types of exempt organizations. a. League of Women Voters. b. Teachers' association. c. American Plywood Association. d. Six Flags over Texas theme park. e. Salvation Army. -§ 501(c)(5) labor organization

Both of these organizations are exempt from Federal income tax. Political activities can be conducted without IRS sanction by:

To provide the greatest Federal income tax benefits for its donors, Orchestra would prefer to be a:

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

Which of the following taxes can be imposed on private foundations?

Match the following statements. a. May be subject to some Federal income taxation and classification may adversely affect amount of charitable contributions received. b. Tax imposed for engaging in transactions with disqualified persons. c. Tax imposed for making investments that are too risky. d. Tax imposed on investments that enable a private foundation to control unrelated for-profit businesses. -Private foundation

Give an example of the indicated types of exempt organizations. a. League of Women Voters. b. Teachers' association. c. American Plywood Association. d. Six Flags over Texas theme park. e. Salvation Army. -§ 501(c)(4) civic league

General requirements for exempt status include the organization serving the common good and the organization being a not-for-profit entity.

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

Match the following statements. a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items". b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business. -Bingo games

Match the following tax forms. a. Return of Private Foundation. b. Application for Recognition of Exemption under § 501(c)(3). c. Return of Organization Exempt from Income Tax. d. Application for Recognition of Exemption under § 501(a). -Form 990

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.

Garden, Inc., a qualifying § 501(c) (3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

Pearl Inc., a tax-exempt organization, leases land, building, and machinery to Purple Partnership for a 5-year period. The rental income from the land and building is $100,000, with related expenses of $40,000. The rental income from the machinery is $9,000, with related expenses of $3,000. What adjustment must be made to net unrelated business income?

Why are some organizations exempt from Federal income tax?

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

All organizations that are exempt from Federal income tax are charities under § 501(c)(3).

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?