Which of the following is a reason why a not-for-profit organization might fail to qualify for tax-exempt status?
A) It is operated primarily for the benefit of its members.
B) Its officers are paid excessive wages.
C) Its primary purpose is to promote the election of a senate candidate.
D) It has unrelated business income.

Question

Quizplus · Accepted Answer

The promotion of political candidates or parties is not a permitted activity for tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code. Therefore, a not-for-profit organization whose primary purpose is to promote the election of a senate candidate will fail to qualify for tax-exempt status.

Answer: A and B
 Not-for-profit organizations that are operated primarily for the benefit of their members or whose officers are paid excessive wages will fail to qualify for tax-exempt status. These activities do not meet the criteria for charitable, religious, educational, scientific, or literary purposes as outlined in Section 501(c)(3) of the Internal Revenue Code.

Answer: D
 While not-for-profit organizations are allowed to have some business activities, any income generated from unrelated business activities is subject to unrelated business income tax (UBIT) and can jeopardize the organization's tax-exempt status if it becomes a substantial part of the organization's overall activities. Therefore, an organization with unrelated business income may fail to qualify for tax-exempt status.

Which of the Following Is a Reason Why a Not-For-Profit