Exam 23: Exempt Entities

The unrelated business income tax (UBIT) is calculated by multiplying unrelated business taxable income by the corporate tax rate.

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on an elective, limited basis. Churches are allowed to make this election.

The purpose of the excise tax imposed on a private foundation for failure to distribute sufficient levels of income is to motivate the foundation to distribute more of its income for application to exempt purposes.

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.

Ice, Inc., a § 501(c)(3) organization, has been leasing a building to Soft, Inc., a taxable entity, for 15 years. The lease terminates in the current tax year. Ice's adjusted basis for the building is $225,000. It sells the building to the Development Partnership, a taxable entity, for $440,000. Selling expenses are $26,400. Calculate the effect of the sale on Ice's UBTI.

For each of the following taxes that 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

Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation's assets at risk. Calculate the tax on jeopardizing investments. Assume that corrective action is taken so that the additional tax does not apply.

Miracle, Inc., is a § 501(c)(3) organization involved in medical research. Based on its expectation that proposed legislation will adversely affect the funding supporting its mission, Miracle hires a lobbyist to work in Washington to represent its views. Miracle is eligible for and thus makes the § 501(h) election. It calculates the lobbying nontaxable amount to be $100,000 ($500,000 exempt purpose expenditures × 20%). The total lobbying expenditures for the year were $115,000. Calculate Miracle's tax on excess lobbying expenditures.

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

Which exempt organizations are not required to file an annual Federal tax return?

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?

Match the following statements. -The trade or business is not substantially related to the exempt purpose of the organization.

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.

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

Restful, Inc., a § 501(c)(3) exempt organization, hires a registered lobbyist to promote its position on pending legislation. For the year, its lobbying expenses are $100,000. Restful makes the § 501(h) election. The lobbying nontaxable amount is $90,000. a. Will the lobbying expenses result in Restful losing its exempt status? b. Calculate the amount of any tax that Restful must pay associated with the lobbying expenses.

A § 501(c)(3) organization that otherwise would be classified as a private foundation can avoid such classification if it satisfies:

An eligible § 501(c)(3) organization has made the § 501(h) election to participate in lobbying on a limited basis. If the lobbying nontaxable amount is exceeded, what are the potential tax consequences to the exempt organization?

The Dispensary is a pharmacy that is part of a § 501(c)(3) hospital. Its primary mission is to dispense medicines for hospital patients. In addition, the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital. It does this for the dual purpose of convenience to the former patients (i.e., the closest pharmacy is six miles away) and to ensure that the former patients receive the medicines that have been prescribed for them. The Dispensary carries out the policy of the hospital board that no more than 25% of its gross revenues come from former-patient medicine sales. If necessary, in December of each year, sales to former patients are curtailed to ensure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year. Medicine dispensed to hospital patients \9 00,000 Medicine sales to former patients 100,000 Calculate the amount of The Dispensary's unrelated business income.

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.

Blue, Inc., receives its support from the following sources. Governmental unit A for services rendered \ 18,000 General public for services rendered 25,000 Gross investment income 8,000 Contributions from individual disqualified persons 19,000 Which of the following statements is correct?