Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

An eligible § 501c)3) organization has made the § 501h) election to participate in lobbying on a limited basis. If the lobbying nontaxable amount is exceeded, what are the potential tax consequences to the exempt organization?

Accepted Answer

First, a tax is levied on the excess lobbying expenditures. Second, such excess lobbying expenditures could result in revocation of exempt status by the IRS if the amount is exceeded repeatedly.

Question 3

Faith Church, a § 501c)3) organization, operates a bingo game two times each week to raise money to support the youth activities of the church. For the current year, net proceeds from the bingo game are $900,000.
a.
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where for-profit bingo games are illegal and where the bingo game is legal for exempt entities.
b.
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where bingo games are legal for both for-profit and exempt entities.

Accepted Answer

a. In this case, the $900,000 is exempt from Federal income taxation because both of the following requirements are satisfied.
∙ The bingo game is legal under both state and local law.
∙ Commercial bingo games conducted for a profit motive) ordinarily are not permitted in the jurisdiction.
b. In this case, the Federal income tax liability to Faith Church is $189,000 $900,000
× 21%).
Since commercial bingo games are permitted in the jurisdiction, the proceeds of
$900,000 from the bingo game sponsored by Faith Church are subject to Federal income taxation as unrelated business income.

Question 4

The Jimenez Group, a private foundation, has been found guilty of self-dealing. To minimize its Federal excise taxes from this activity, Jimenez should:

Accepted Answer

A)   Surrender its tax-exempt status.
B)   Reorganize as a C corporation.
C)   Pay the second-level excise tax immediately.
D)   Undo "correct")  the violation immediately.

Question 5

Matching
Give an example of the indicated types of exempt organizations.
-§ 501c)6) business league

Accepted Answer

A)  League of Women Voters.
B)  Teachers' association.
C)  American Plywood Association.
D)  Six Flags over Texas theme park.
E)  Salvation Army.

Question 6

Match the following statements.
-Form 990.

Accepted Answer

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.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation's assets at risk.
Calculate the tax on jeopardizing investments. Assume that corrective action is taken so that the additional tax does not apply.

Accepted Answer

The answer of Well, Inc., a private foundation, makes a...

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax.
-Tax on failure to distribute adequate amounts of income

Accepted Answer

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.

Question 11

What is the purpose of the unrelated business income tax?

Accepted Answer

The answer of What is the purpose of the unrelated...

Question 12

The tax consequences to a donor of making a charitable contribution to a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to a public charity.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

The answer of Arbor, Inc., an exempt organization, leases land,...

Question 14

The Dispensary is a pharmacy that is part of a § 501c)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 six miles away) and to ensure that the former patients receive the medicines that have been prescribed for them.
The Dispensary 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 ensure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year. Medicine dispensed to hospital patients $ \quad \$ 900,000 $
Medicine sales to former patients $ \quad 100,000 $ Calculate the amount of The Dispensary's unrelated business income.

Accepted Answer

The answer of The Dispensary is a pharmacy that is...

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Midnight Basketball, Inc., an exempt entity that organizes and conducts basketball games for youths ages 18-25, 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 shoes manufactured only 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

Accepted Answer

The answer of Midnight Basketball, Inc., an exempt entity that...

Question 18

Ice, Inc., a § 501c)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.

Accepted Answer

The answer of Ice, Inc., a § 501c)3) organization, has...

Question 19

Why are some organizations exempt from Federal income tax?

Accepted Answer

The answer of Why are some organizations exempt from Federal...

Question 20

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?

Accepted Answer

A)   $65,000
B)   $65,250
C)   $66,000
D)   $72,500

Exam 15: Exempt Entities

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

An eligible § 501c)3) organization has made the § 501h) election to participate in lobbying on a limited basis. If the lobbying nontaxable amount is exceeded, what are the potential tax consequences to the exempt organization?

The Jimenez Group, a private foundation, has been found guilty of self-dealing. To minimize its Federal excise taxes from this activity, Jimenez should:

Matching Give an example of the indicated types of exempt organizations. -§ 501c) 6) business league

Match the following statements. -Form 990.

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

Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation's assets at risk. Calculate the tax on jeopardizing investments. Assume that corrective action is taken so that the additional tax does not apply.

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.

For each of the following taxes that are imposed on private foundations and/or foundation managers, match the appropriate initial tax or additional tax. -Tax on failure to distribute adequate amounts of income

What is the purpose of the unrelated business income tax?

The tax consequences to a donor of making a charitable contribution to a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to a public charity.

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.

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

Why are some organizations exempt from Federal income tax?