Question 1

Match the following statements.
-Bingo games

Accepted Answer

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. 
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. C

Question 2

Rattler, Inc., an exempt organization, trains disabled individuals to design web pages. Rather than hold a traditional graduation exercise, the graduates compete in a web design contest. Such activities are held four times each year. An admission fee of $10 is charged to the general public to attend the contest. Eight hundred people attended the contest this year, and prizes of $2,000 were given to the top three graduates. Calculate the amount of Rattler's unrelated business income from this activity.

Accepted Answer

The contest activity is not classified as an unrelated trade or business. To be so classified, the following characteristics must be present.
∙ The organization conducts a trade or business.
∙ The trade or business is not substantially related to the exempt purpose of the organization.
∙ The trade or business is regularly carried on by the organization.
Based on the data provided, neither the "not substantially related" nor the "regularly carried on" characteristic is satisfied. Thus, Rattler incurs zero unrelated business income from the contest because the contest is not an unrelated trade or business.

Question 3

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. The taxes are not imposed on exempt organizations classified as public charities.

Accepted Answer

A) True 
 B)False  True

Question 4

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?

Accepted Answer

A)  The $800,000 is unrelated business income. 
B)  The $500,000 of gift shop net income is unrelated business income. 
C)  The $300,000 is unrelated business income because the gift shop is a feeder organization. 
D)  None of the $800,000 is unrelated business income. 
E)  The unrelated business income tax does not apply to churches. 
A)  The $800,000 is unrelated business income. 
B)  The $500,000 of gift shop net income is unrelated business income. 
C)  The $300,000 is unrelated business income because the gift shop is a feeder organization. 
D)  None of the $800,000 is unrelated business income. 
E)  The unrelated business income tax does not apply to churches.

Question 5

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year. $$\begin{array} { l r } 
\text { General public for services rendered } & \$ 22,000 \
\text { Governmental unit A for services rendered } & 30,000 \
\text { Governmental unit B for services rendered } & 3,000 \
\text { Governmental unit C for services rendered } & 8,000 \
\text { Gross investment income } & 19,000
\end{array}$$ Contributions from individual disqualified persons 18,000
Is Assist, Inc., classified as a private foundation? Explain.

Accepted Answer

To not be classified as a private founda

Question 6

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

Accepted Answer

A)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is regularly carried on by the organization. 
B)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business must be substantially related to the exempt purpose of the organization, and the trade or business must be regularly carried on by the organization. 
C)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is carried on during more than half the year. 
D)  An exempt entity that conducts a business that competes with for-profit businesses automatically is subject to the UBIT. 
E)  None of these statements is correct. 
A)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is regularly carried on by the organization. 
B)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business must be substantially related to the exempt purpose of the organization, and the trade or business must be regularly carried on by the organization. 
C)  To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is carried on during more than half the year. 
D)  An exempt entity that conducts a business that competes with for-profit businesses automatically is subject to the UBIT. 
E)  None of these statements is correct.

Question 7

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

Accepted Answer

A) League of Women Voters. 
B) Teachers’ association. 
C) American Plywood Association. 
D) Six Flags over Texas theme park. 
E) Salvation Army. 
A) League of Women Voters. 
B) Teachers’ association. 
C) American Plywood Association. 
D) Six Flags over Texas theme park. 
E) Salvation Army.

Question 8

A museum's lobbying nontaxable amount is $600,000. Its grass roots nontaxable amount is:

Accepted Answer

A)  $600,000. 
B)  $300,000. 
C)  $150,000. 
D)  $0. 
A)  $600,000. 
B)  $300,000. 
C)  $150,000. 
D)  $0.

Question 9

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:

Accepted Answer

A)  $0. 
B)  $12,500. 
C)  $40,000. 
D)  $50,000. 
E)  $60,000. 
A)  $0. 
B)  $12,500. 
C)  $40,000. 
D)  $50,000. 
E)  $60,000.

Question 10

Plus Inc. is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?

Accepted Answer

Yes. The materiality exception

Question 11

Match the following tax forms.
-Form 1023

Accepted Answer

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). 
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).

Question 12

Federal agencies exempt from Federal income tax under § 501(c)(1) are not subject to the unrelated business income tax (UBIT).

Accepted Answer

A) True 
 B)False

Question 13

Some of the excise taxes that may be imposed on private foundations may be imposed on both the private foundation and the foundation manager.

Accepted Answer

A) True 
 B)False

Question 14

First Americans, Inc., a § 501(c)(3) organization, operates a museum that depicts the lives of a tribe of Native Americans. It charges an admission fee but also finances its operations through endowment income, contributions, and gift shop sales. The gift shop is operated by 50 volunteers and the museum is operated by 15 employees. Revenue by source is: $\begin{array}{lr}
\text { Admission fees } & \$ 700,000 \
\text { Endowment income } & 75,000 \
\text { Gift shop net income } & 300,000 \
\text { Contributions } & 100,000
\end{array}$ 
a. The only potential source of UBI for First Americans, Inc., is the gift shop net income of $300,000. However, since the individuals performing substantially all the work of the gift shop do so without compensation (i.e., they are volunteers), the gift shop net income of $300,000 is not classified as unrelated business income.
a. Determine the amount of First Americans' unrelated business income (UBI).
b. Determine the amount of First American's unrelated business income tax (UBIT).

Accepted Answer

Thus, First Americans, Inc., r

Question 15

How can an exempt organization otherwise classified as a private foundation become a public charity?

Accepted Answer

An exempt organization that otherwise wo

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is the fifteenth day of the third month after the end of the taxable year.

Accepted Answer

A) True 
 B)False

Question 18

Teal, Inc., is a private foundation that failed to distribute an adequate amount of income for the exempt purpose of Teal. Which of the following statements is correct?

Accepted Answer

A)  An excise tax in the form of an initial tax at the rate of 10% may be imposed on Teal. 
B)  An excise tax in the form of an initial tax at the rate of 5% may be imposed on the foundation manager. 
C)  An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal. 
D)  An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager. 
A)  An excise tax in the form of an initial tax at the rate of 10% may be imposed on Teal. 
B)  An excise tax in the form of an initial tax at the rate of 5% may be imposed on the foundation manager. 
C)  An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal. 
D)  An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.

Question 19

Engaging in a prohibited transaction can result in an exempt organization being subject to Federal income tax, but such an act cannot cause the entity to lose its exempt status unless the exempt organization repeats the prohibited transaction.

Accepted Answer

A) True 
 B)False

Question 20

Match the following tax forms.
-Form 990

Accepted Answer

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). 
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).

Exam 23: Exempt Entities

Match the following statements. -Bingo games

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. The taxes are not imposed on exempt organizations classified as public charities.

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

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

A museum's lobbying nontaxable amount is $600,000. Its grass roots nontaxable amount is:

Plus Inc. is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?

Match the following tax forms. -Form 1023

Federal agencies exempt from Federal income tax under § 501(c)(1) are not subject to the unrelated business income tax (UBIT).

Some of the excise taxes that may be imposed on private foundations may be imposed on both the private foundation and the foundation manager.

How can an exempt organization otherwise classified as a private foundation become a public charity?

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

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is the fifteenth day of the third month after the end of the taxable year.

Teal, Inc., is a private foundation that failed to distribute an adequate amount of income for the exempt purpose of Teal. Which of the following statements is correct?

Engaging in a prohibited transaction can result in an exempt organization being subject to Federal income tax, but such an act cannot cause the entity to lose its exempt status unless the exempt organization repeats the prohibited transaction.

Match the following tax forms. -Form 990

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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