Exam 23: Exempt Entities

Match the following statements. 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. -Form 990.

The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is not classified as a private foundation.

All of the stock of Hot Dog,Inc. ,a fast food franchise operating in 9 southeastern states,is owned by Welcome America,Inc. ,a § 501(c)(3) organization.The stock was received last year as an inheritance from Rob,the entrepreneur who founded the chain. During the current year,Hot Dog reports profits before taxes (this is the same as taxable income) of $8 million.Hot Dog distributes $5 million to its parent,and it retains the balance for expansion purposes. a.What are the tax consequences to Hot Dog and to Welcome America? a.change if Hot Dog distributes $8 million to Welcome America,rather than $5 million? b.How would your answer in

An intermediate sanction imposed by the IRS on an exempt organization is a greater sanction than revocation of exempt status.

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

The excise tax imposed on a private foundation's investment income can be imposed as an initial (first-level) tax but cannot be imposed as an additional (second-level) tax.

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)(3) organization

Match the following statements. 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. -The trade or business consists of selling merchandise,and substantially all of the merchandise has been received as gifts or contributions.

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)(6) business league

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.Return of Certain Excise Taxes on Charities and Other Persons under Chapters 41 and 42 of the Internal Revenue Code.e.Application for Recognition of Exemption under § 501(a).f.Application for Extension of Time. -Form 990

For each of the following taxes which are imposed on private foundations and/or Foundation Managers, match the appropriate initial tax or additional tax. a.5% initial tax and 25% additional tax on private foundation.b.15% initial tax and 100% additional tax on private foundation.c.100% additional tax on private foundation and 50% additional tax on foundation manager.d.5% initial tax and 200% additional tax on private foundation.e.5% initial tax and 200% additional tax on the disqualified person. -Tax on taxable expenditures

Plus,Inc. ,is a § 501(c)(3) organization.It generates a small amount of net income each year.Ralph,the CEO of Plus,Inc. ,is concerned that Plus may be subject to the unrelated business income tax.Is there a materiality exception to this tax? A 501(c)(3) with "net income" does not automatically result in a UBIT classification.They must be conducting a trade or business that is regularly carried on and that is not substantially related to its exempt purpose.

A church is one of the types of exempt organizations.

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 on investments that enable a private foundation to control unrelated for-profit businesses. -Private foundation

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

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

For each of the following taxes which are imposed on private foundations and/or Foundation Managers, match the appropriate initial tax or additional tax. a.5% initial tax and 25% additional tax on private foundation.b.15% initial tax and 100% additional tax on private foundation.c.100% additional tax on private foundation and 50% additional tax on foundation manager.d.5% initial tax and 200% additional tax on private foundation.e.5% initial tax and 200% additional tax on the disqualified person. -Tax on jeopardizing investments

To satisfy the "not for profit" requirement for exempt status,the entity may not be engaged in a trade or business.

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?

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