Exam 15: Exempt Entities

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 an exempt organization to be subject to the unrelated business income tax, the trade or business must not be substantially related to the exempt purpose of the organization.

Some of the excise taxes which may be imposed on private foundations may be imposed on both the private foundation and the foundation manager.

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?

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

All organizations that are exempt from Federal income tax are exempt under § 501(c)(3).

The key factors in determining whether an exempt entity's income from a bingo game is unrelated trade or business income are whether substantially all the work is performed by volunteers and all of the prizes to be awarded are received as donations.

Which of the following are organizations exempt under § 501(c)(3)?

The Dispensary is a pharmacy that is part of a § 501(c)(3) hospital. Its primary mission is to dispense medicines for hospital patients. In addition, the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital. It does this for the dual purpose of convenience to the former patients (i.e., the closest pharmacy is 6 miles away), and to ensure that the former patients receive the medicines that have been prescribed for them. The Dispensary carefully carries out the policy of the hospital board that no more than 25% of its gross revenues come from former-patient medicine sales. If necessary, in December of each year, sales to former patients are curtailed to assure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year. Medicine dispensed to hospital patients $900,000 Medicine sales to former patients 100,000 Calculate the amount of The Dispensary's unrelated business income.

The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed on exempt organizations classified as private foundations and are not imposed on exempt organizations classified as public charities.

Match the following statements. -Form 990-PF.

Orange, Inc., a private foundation, engages in a transaction with a disqualified person in the amount of $800,000. Calculate the tax on self-dealing. Assume that corrective action is taken so that the additional tax does not apply.

Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?

Which of the following statements regarding intermediate sanctions is correct?

Match the following statements with the correct description. -Kentwood Rodeo Club

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

Which of the following statements regarding low-cost articles is correct?

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

Match the following tax forms. -Form 1024

Agnes is aware that a feeder organization is subject to Federal income taxation. She wonders whether an organization otherwise taxable as a feeder organization can avoid such status if it remits less than 80% of its profits to the § 501(c)(3) entity.