Exam 23: Exempt Entities

Tan, Inc., a tax-exempt organization, has $65,000 of net unrelated business income. Total charitable contributions (all associated with the unrelated trade or business) are $7,500. Assuming that the $7,500 was deducted in calculating net unrelated business income, what is Tan's unrelated business taxable income?

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.

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

A § 501(c)(3) exempt organization (excluding churches and private foundations) must make available to the general public its current Form 990.

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

The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is a public charity.

Match the following statements. a. Exempt from tax on unrelated business. b. Inappropriate definition. c. Exempt organization may be subject to the tax on unrelated business income. d. Annual information return of an exempt organization that is required to file a return and which is not a private foundation. e. Appropriate definition. f. Annual information return of a private foundation. -The trade or business is not substantially related to the exempt purpose of the organization.

Even though a church is not required to obtain IRS approval of its exempt status, it still annually must file a Form 990.

A corporate sponsorship payment that is contingent on attendance at a sporting event increases the recipient's unrelated business income.

Which of the following are qualified corporate sponsorship payments?

Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.

Medical, Inc., a § 501(c)(3) exempt organization, engages in an excess benefit transaction, such that the intermediate sanctions rules may apply. The amount of the excess benefit is $50,000. For the organization management, the participation in the excess benefit transaction was not willful and was due to reasonable cause. Calculate the amount of the excise tax (first-level tax) imposed under the intermediate sanctions provision.

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year.

First Americans, Inc., a § 501(c)(3) organization, operates a museum which depicts the lives of a tribe of Native Americans. It charges an admission fee, but also finances its operations through endowment income, contributions, and gift shop sales. The gift shop is operated by 50 volunteers and the museum is operated by 15 employees. Revenue by source is: a. Determine the amount of First Americans' unrelated business income (UBI). b. Determine the amount of First American's unrelated business income tax (UBIT).

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

Arbor, Inc., an exempt organization, leases land, building, and machinery to a tenant for a 5-year period. The rent income for the land and building is $400,000 per year and that from the related machinery is $80,000 per year. Expenses incurred by Arbor for the land and building during the year are $60,000, and those for the machinery are $36,000. Net unrelated business income, which includes the above rental income and expenses, is $800,000. Calculate Arbor's unrelated business taxable income.

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

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 1023

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. -Not an exempt organization

Match the following statements. a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items". b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events c. Is considered an unrelated trade or business if legally it can be conducted by commercial (for-profit) entities. d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business. -Membership lists