Exam 23: Exempt Entities

Hope, Inc., an exempt organization, owns a factory building that it leases to a taxable corporation for $160,000 per year.Related expenses for Hope are $40,000.Hope's average acquisition indebtedness on the building is $600,000 and the average adjusted basis is $800,000.Calculate Hope's unrelated debt-financed income and expenses.Then indicate the effect of these items on unrelated business taxable income.

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.

The general objective of the tax on unrelated business income is to tax such income as if the entity were a taxable corporation.

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

Even though a church is exempt under § 501(c)(3), it is required to obtain IRS approval for its exempt status.

One of the requirements for an exempt organization being classified as an unrelated trade or business is the "not substantially related" requirement.That is, the trade or business is not substantially related to the exempt purpose of the organization.How can an exempt organization avoid satisfying this requirement?

Revenue generated by an exempt organization from the distribution of low-cost items is not income from an unrelated trade or business.

Define a private foundation.

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?

Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.

Under what circumstances are bingo games not treated as an unrelated trade or business?

If personal property is leased with real property and more than 45% of the rent income under the lease is from personal property, all of the rent income is subject to the unrelated business income tax.

Which of the following statements is incorrect?

In calculating unrelated business taxable income, the exempt organization is permitted to deduct only the charitable contributions associated with the unrelated trade or business.

Define "trade or business" for purposes of the unrelated business income tax (UBIT).

Which of the following are exempt organizations?

An exempt organization that otherwise would be classified as an unrelated trade or businesses will not be subject to the unrelated business income tax if the individuals performing substantially all the work of the trade or business do so without compensation.

The due date for both Form 990 (Return of Organization Exempt from Income Tax) and Form 990-PF (Return of Private Foundation) is the fifteenth day of the fourth month after the end of the taxable year.

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.

For each of the following taxes which are imposed on private foundations, match the appropriate initial tax or additional tax.