Exam 15: Exempt Entities

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

Corporate sponsorship payments

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?

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis. An example of such an exempt organization is a church.

Support the Pets, Inc., a § 501(c)(3) organization, provides pet food to humane societies. All of the pet food is received as contributions from individuals or from a wholly-owned, for-profit subsidiary (Sales, Inc.), which is in the retail pet food business (i.e., pet food that has been in inventory for over 120 days is transferred to Support the Pets for distributions to humane societies). In addition to the pet food, Sales distributes 75% of its net income each year to Support the Pets. a. Is Support the Pets or Sales, Inc., a feeder organization? b. How would your answer change if nearly all of the work of Support the Pets was done by volunteers?