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Exam 23: Exempt Entities

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Question 31

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

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No. While a feeder organization carries ...

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Question 32

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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?

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

E) A) and B)
F) A) and C)

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Question 33

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The League of Women Voters is a § 501(c)(3) organization.

A feeder organization is an exempt organization that provides funding for nutritional programs for children.

To provide the greatest Federal income tax benefits for its donors, Orchestra would prefer to be a:

All of the stock of Hot Dog, Inc., a fast-food franchise operating in nine southeastern states, is owned by Winsome America, Inc., a § 501(c)(3) organization. The stock was received last year as an inheritance from Rob, the entrepreneur who founded the chain. During the current year, Hot Dog reports profits before taxes and taxable income of $8 million. Hot Dog distributes $5 million to its parent, and it retains the balance for expansion purposes. a. What are the tax consequences to Hot Dog and to Winsome America? b. How would your answer ina. change if Hot Dog distributes $8 million to Winsome, rather than $5 million?

Define a private foundation.

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

Match the following statements. -The trade or business consists of selling merchandise, and substantially all of the merchandise has been received as gifts or contributions to the entity.

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000. $\begin{array}{lr}\text { Dividend income } & \$ 12,000 \\\text { Interest income } & 6,000 \\\text { Royalty income } & 15,000 \\\text { Rent income from } & \\\text { equipment } & 25,000\end{array}$ The only expenses incurred associated with these items are rental expenses (which includes depreciation of $10,000) of $15,000. Calculate City, Inc.'s UBTI.

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.

Only certain exempt organizations must obtain IRS approval to obtain exempt status.

Match the following statements. -Form 990-PF.

Match the following statements. -Unrelated business income is generally that derived from the unrelated trade or business reduced by the deductions directly connected with the conduct of the unrelated trade or business.

What is the purpose of the unrelated business income tax?

Give an example of the indicated types of exempt organizations. -§ 501(c) (4) civic league

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

Spirit, Inc., a § 501(c)(3) organization, is classified as a private foundation. It reports investment income of $175,000. Calculate Spirit's tax on its investment income.

One of the requirements for an exempt organization to be 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 statements. -Private foundation