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Exam 23: Exempt Entities

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Question 51

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Robin,Inc. ,an exempt organization,acquired a building for $400,000 which it will lease to ABC,Inc. ,for $40,000 annually.To finance the acquisition of the building,Robin secures a mortgage on it of $250,000.Advise Robin as to whether it has any unrelated debt-financed income or deductions.

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The building is appropriately classified...

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Question 52

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Teal,Inc. ,is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?

A) An excise tax in the form of an initial tax at the rate of 5% may be imposed on Teal.
B) An excise tax in the form of an initial tax at the rate of 2.5% may be imposed on the foundation manager.
C) An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D) An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
E) None of the statements is correct.

F) B) and C)
G) C) and E)

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Question 53

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Garden,Inc. ,a qualifying § 501(c) (3) organization,incurs lobbying expenditures of $210,000 during the taxable year.Exempt purpose expenditures are $900,000.If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis,its tax liability resulting from the lobbying expenditures is:

Blue,Inc. ,receives its support from the following sources. Governmental unit A,for services rendered $18,000 General public,for services rendered 25,000 Gross investment income 8,000 Contributions from individual substantial contributors (disqualified persons) 19,000 Which of the following statements is correct?

What is the purpose of the unrelated business income tax?

Identify the components of the tax model for unrelated business taxable income.

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

General requirements for exempt status include the organization serving the common good and the organization being a not-for-profit entity.

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.Return of Certain Excise Taxes on Charities and Other Persons under Chapters 41 and 42 of the Internal Revenue Code.e.Application for Recognition of Exemption under § 501(a).f.Application for Extension of Time. -Form 4720

Match the following statements. a.May be subject to some Federal income taxation and classification may adversely affect amount of charitable contributions received.b.Tax imposed for engaging in transactions with disqualified persons.c.Tax imposed on investments that enable a private foundation to control unrelated for-profit businesses. -Tax on excess business holdings

Which of the following is not an example of an exempt organization?

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.

A § 501(c)(3) organization exchanges its membership lists with another exempt organization.What are the Federal income tax consequences?

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis.An example of such an exempt organization is a church.

What are intermediate sanctions and to what types of exempt organizations do they apply?

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.Return of Certain Excise Taxes on Charities and Other Persons under Chapters 41 and 42 of the Internal Revenue Code.e.Application for Recognition of Exemption under § 501(a).f.Application for Extension of Time. -Form 990-PF

An exempt entity in no circumstance is subject to Federal income tax.

Theater,Inc. ,an exempt organization,owns a printing company,Printers,Inc. ,which remits 85% of its profits to Theater,Inc.Since Printers remits at least 85% of its profits to Theater,neither Theater,Inc. ,nor Printers,Inc. ,must pay income tax on this $85,000 ($100,000 × 85%).

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

Define average acquisition indebtedness with respect to debt-financed property.