Exam 15: Exempt Entities

Is there a materiality exception associated with the unrelated business income tax?

What is the purpose of the "broadly supported" exception for an exempt organization being classified as a private foundation?

Which of the following statements is correct?

Define a private foundation.

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

Define average acquisition indebtedness with respect to debt-financed property.

A § 501(c)(3) organization exchanges its membership lists with another exempt organization. What are the Federal income tax consequences?

What is the purpose of the unrelated business income tax?

Qualified state tuition programs are exempt from Federal income tax under § 501(c)(3).

All bona-fide churches generally are exempt from Federal income tax.

Which of the following statements are correct?

An exempt organization owns a building for which its adjusted basis is $100,000 at the beginning of the year and $90,000 at the end of the year. One-half of the ground floor is leased to a commercial venture for $10,000 per year. The remainder of the first floor and all of the second floor are used by the exempt organization in carrying out its mission. When the exempt organization constructed the building 20 years ago, it incurred a mortgage of $150,000. The final payment of this mortgage was made in December of the current year. The average acquisition indebtedness for the current year is $30,000. Determine to what extent the building is debt-financed property, the amount of debt-financed income, and the portion of debt-financed income that is treated as unrelated business income. The building is not classified as debt-financed property if substantially all (at least 85%) of the use is for the achievement of the exempt purpose of the exempt organization. Since only 75% of the building's usage satisfies this requirement, 25% of the building is classified as debt-financed property.

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000.

A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 75% of the merchandise sold had been received as a contribution.

What are the excise taxes imposed on private foundations, and why are they imposed?

Give an example of the indicated types of exempt organizations.

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

Hope, Inc., an exempt organization, owns a factory building that it leases to a taxable corporation for $150,000 per year. Related expenses for Hope are $40,000. Hope's average acquisition indebtedness on the building is $500,000 and the average adjusted basis is $750,000. Calculate Hope's unrelated debt-financed income and expenses. Then indicate the effect of these items on unrelated business taxable income.

What are intermediate sanctions and to what types of exempt organizations do they apply?

The unrelated business income tax (UBIT) is designed to treat the entity as if it were subject to the corporate income tax on its unrelated business taxable income, with the highest corporate tax rate (35%) applying.