Exam 23: Exempt Entities

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. The taxes are not imposed on exempt organizations classified as public charities.

What is the purpose of the unrelated business income tax?

If an exempt organization conducts a trade or business that is regularly carried on by the organization, where the business relates to the organization's exempt purpose, the organization is subject to the unrelated business income tax (UBIT).

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.

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on an elective, limited basis. Churches are allowed to make this election.

Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax only if the exempt organization is a private foundation.

An exempt entity is not subject to any Federal income tax.

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.

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. Application for Recognition of Exemption under § 501(a). -Form 990-PF

Rattler, Inc., an exempt organization, trains disabled individuals to design web pages. Rather than hold a traditional graduation exercise, the graduates compete in a web design contest. Such activities are held four times each year. An admission fee of $10 is charged to the general public to attend the contest. Eight hundred people attended the contest this year, and prizes of $2,000 were given to the top 3 graduates. Calculate the amount of Rattler's unrelated business income from this activity.

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

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities in the same manner as a C corporation.

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.

Midnight Basketball, Inc., an exempt organization that organizes and conducts basketball games for youths ages 10-13, receives a $20,000 contribution from Brown Shoe Company. Midnight agrees to put Brown's logo on the cover of its monthly newsletter. a. Is the contribution unrelated business income to Midnight? b. Assume that instead of putting Brown's logo on the cover of its newsletter, Midnight agrees to include a statement in the newsletter that youth playing in the games conducted by Midnight wear only shoes manufactured by Brown. Is the contribution unrelated business income to Midnight? b. change if the amount of the payment was $7,500 instead of $20,000? c. Would your answer in

Chorus reports $20,000 of sales of pizzas at the local high school ballgames this year. Related expenses total $6,000. UBTI equals:

Maroon, Inc., a tax-exempt organization, leases a building and equipment to Brown Partnership. The rental income from the building is $100,000 and from the equipment is $9,000. Rental expenses are $40,000 for the building and $4,000 for the equipment. What adjustment must be made to net unrelated business income?

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. 10% initial tax and 25% additional tax on private foundation. b. 30% initial tax and 100% additional tax on private foundation. c. 10% initial tax and 200% additional tax on private foundation. d. 10% initial tax and 100% additional tax on disqualified person. e. 10% initial tax and 200% additional tax on the disqualified person. -Tax on self-dealing

Which of the following statements regarding exempt organization filing requirements is incorrect?

School has been paying the UBIT every year. To reduce or eliminate this year's tax liability, School might:

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