Exam 23: Exempt Entities

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.

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?

George is running for mayor of Culpepper.The members of Third Church adamantly oppose his candidacy.They would like to run a political advertisement in the local newspaper opposing his candidacy.The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George;it does not support his opponent.

Spirit,Inc. ,a § 501(c)(3) organization,is classified as a private foundation.It has investment income of $175,000.Calculate Spirit's tax on its investment income.

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.

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. -Tax on self-dealing

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 self-dealing

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.

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

First Americans,Inc. ,a § 501(c)(3) organization,operates a museum which 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: Admission fees $700,000 Endowment income 75,000 Gift shop net income 300,000 Contributions 100,000 ​ a.Determine the amount of First Americans' unrelated business income. b.Determine the amount of First American's unrelated business income tax (UBIT).

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 2758

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.

City,Inc. ,an exempt organization,has included among other amounts the following in calculating net unrelated business income of $500,000. Dividend income $12,000 Interest income 6,000 Royalty income 15,000 Rent income from equipment 25,000 The only expenses incurred associated with these items are rental expenses (which includes depreciation of $10,000) of $15,000.Calculate City,Inc.'s UBTI.

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

Describe how an exempt organization can be eligible to make lobbying expenditures without losing its tax exemption.

Watch,Inc. ,a § 501(c)(3) exempt organization,solicits contributions through a mail campaign.An executive,who recently completed an executive MBA degree program,recommends that personal address labels be included as an additional way to motivate the potential donor to contribute.The value of these labels is $9.95 per potential donor.What is the effect of the inclusion of the address labels on Watch's unrelated business income?

A feeder organization is exempt from Federal income taxation because it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity.

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

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

If an exempt organization distributes "low-cost items" as an incidental part of its solicitation for charitable contributions,the distribution is not considered an unrelated trade or business. ​ a.Under what dollar amount is a distribution no longer a "low-cost item"? b.Provide examples of low-cost items.