Question 1

Medical, Inc., a § 501(c)(3) exempt organization, engages in an excess benefit transaction. 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.

Accepted Answer

The answer of Medical, Inc., a § 501(c)(3) exempt organization,...

Question 2

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax)?
A) Federal agencies.
B) Churches.
C) Exempt organizations whose annual gross receipts do not exceed $50,000.
D) Private foundations.
E) None of these entities must file Form 990.

Accepted Answer

The answer of Which of the following exempt organizations are...

Question 3

Which of the following are consequences of tax-exempt status?
A) Not necessary to file a Federal income tax return.
B) Generally exempt from Federal income tax.
C) Contributions to the exempt organization are deductible by the donor.
D) Only b. and c.
E) a., b., and c.

Accepted Answer

The answer of Which of the following are consequences of...

Question 4

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?
A) Debt incurred in acquiring or improving the property.
B) Debt incurred to enable the organization to carry out its exempt purpose.
C) Debt incurred to enable the exempt organization to acquire a feeder organization.
D) Only a. and b.
E) a., b., and c.

Accepted Answer

The answer of Acquisition indebtedness consists of the unpaid amounts...

Question 5

Help, Inc., a tax-exempt organization, incurs lobbying expenses of $275,000 during the tax year. Help is eligible for and makes the § 501(h) lobbying expenditure election. During the year, Help spends $1,200,000 carrying out its exempt mission.
a. Will the lobbying expense result in Help losing its exempt status?
b. Calculate the amount of any tax that Help must pay associated with its lobbying expenses.

Accepted Answer

The answer of Help, Inc., a tax-exempt organization, incurs lobbying...

Question 6

Which of the following statements regarding exempt organization filing requirements is incorrect?
A) Churches are required to file Form 990 (Return of Organization Exempt from Income Tax) only if its annual gross receipts exceed $50,000.
B) The due date for Form 990 (Return of Organization Exempt from Income Tax) is the fifteenth day of the fifth month after the end of the taxable year, whereas for private foundations the due date for Form 990-PF (Return of Private Foundation) is the fifteenth day of the fourth month after the end of the tax year.
C) Exempt organizations whose annual gross receipts do not exceed $50,000 can file an e-Postcard.
D) Only a. and b. are incorrect.
E) a., b., and c. are incorrect.

Accepted Answer

All of the statements (a.), (b.), and (c.) are incorrect. Churches are typically not required to file Form 990 regardless of their annual gross receipts, the due date for Form 990 for exempt organizations is the fifteenth day of the fifth month after the end of the taxable year, and the electronic option for filing for certain smaller exempt organizations is Form 990-N, not the e-Postcard.

Question 7

Restful, Inc., a § 501(c)(3) exempt organization, hires a registered lobbyist to promote its position on pending legislation. For the year, its lobbying expenses are $100,000. Restful makes the § 501(h) election. Assume the lobbying nontaxable amount is $90,000.
a. Will the lobbying expenses result in Restful losing its exempt status?
b. Calculate the amount of any tax that Restful must pay associated with the lobbying expenses.

Accepted Answer

The answer of Restful, Inc., a § 501(c)(3) exempt organization,...

Question 8

Miracle, Inc., is a § 501(c)(3) organization involved in medical research. Based on its expectation that proposed legislation will adversely affect the funding supporting its mission, Miracle hires a lobbyist to work in Washington to represent its views.
Miracle is eligible for and thus makes the § 501(h) election. It calculates the lobbying nontaxable amount to be $100,000 ($500,000 exempt purpose expenditures × 20%). The total lobbying expenditures for the year were $115,000. Calculate Miracle's tax on excess lobbying expenditures.

Accepted Answer

The answer of Miracle, Inc., is a § 501(c)(3) organization...

Question 9

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

Accepted Answer

The answer of Spirit, Inc., a § 501(c)(3) organization, is...

Question 10

Which of the following is one of the requirements that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property, for purposes of the unrelated business income tax?
A) The principal purpose of acquiring the land is for investment.
B) The land is used within ten years of the acquisition date in the organization's exempt purpose.
C) The land is located in the United States.
D) Only a. and b.
E) None of the above.

Accepted Answer

In order for mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property, for purposes of the unrelated business income tax, it must be used within ten years of the acquisition date in the organization's exempt purpose. This requirement is stated in IRS Publication 598. The other options (A and C) are not relevant to this requirement.

Question 11

Wonder, Inc., a § 501(c)(3) exempt organization, acquired all the stock of a for­profit corporation for $100,000. Wonder is a private foundation. The acquired corporation was not a related business. Calculate the tax on excess business holdings. Assume that corrective action is taken so that the additional tax does not apply.

Accepted Answer

The answer of Wonder, Inc., a § 501(c)(3) exempt organization,...

Question 12

To maintain exempt status, an organization must do which of the following:
A) Satisfy only an organizational test.
B) Satisfy only an operational test.
C) Satisfy both an organizational test and an operational test.
D) Satisfy a financial test.
E) Once exempt status is granted, it will continue regardless of whether the organizational test and the operational test are satisfied.

Accepted Answer

To maintain exempt status, an organization must satisfy both an organizational test and an operational test. The organizational test determines whether an organization's structure and purposes qualify for tax exemption, while the operational test examines whether the organization's activities are consistent with its exempt purposes. Both tests must be met for an organization to maintain its exempt status.

Question 13

Which of the following statements regarding the disclosure Regulations is correct?
A) Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available requirement."
B) Forms 990 and 1023 must be readily available to the general public.
C) If an individual requests a copy of the required tax forms in writing, the exempt entity must provide a copy within 30 days.
D) Only a. and b. are correct.
E) a., b., and c. are all correct.

Accepted Answer

a. Posting the required tax forms on the internet is an acceptable technique for satisfying the "widely available requirement." This is true under the disclosure Regulations, as long as the organization takes reasonable steps to ensure that the information is easily accessible to the public.

b. Forms 990 and 1023 must be readily available to the general public. This is also true under the disclosure Regulations. Additionally, other forms such as Form 990-T may be required to be disclosed depending on the circumstances.

c. If an individual requests a copy of the required tax forms in writing, the exempt entity must provide a copy within 30 days. This is also correct under the disclosure Regulations. The organization must provide a copy of the requested forms to the individual within 30 days of receiving the request.

Question 14

Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation 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 15

Orange, Inc., a private foundation, engages in a transaction with a disqualified person in the amount of $800,000. Calculate the tax on self-dealing. Assume that corrective action is taken so that the additional tax does not apply.

Accepted Answer

The answer of Orange, Inc., a private foundation, engages in...

Question 16

Warmth, Inc., a private foundation, makes an expenditure of $800,000 that should not be made by a private foundation. Calculate the tax on taxable expenditures. Assume that corrective action is taken so that the additional tax does not apply.

Accepted Answer

The answer of Warmth, Inc., a private foundation, makes an...

Question 17

All of the stock of Hot Dog, Inc., a fast food franchise operating in 9 southeastern states, is owned by Welcome 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 (this is the same as 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 Welcome America?
a. change if Hot Dog distributes $8 million to Welcome America, rather than $5 million?
b. How would your answer in

Accepted Answer

The answer of All of the stock of Hot Dog,...

Question 18

For purposes of the unrelated business income tax (UBIT), land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied. Which of the following is not included in the requirements?
A) The principal purpose of acquiring the land is for use (substantially all) in achieving the organization's exempt purpose.
B) The fair market value of the land is not over 50% of the fair market value of land presently owned by the exempt organization.
C) The use of the land by the exempt organization will begin within ten years of the acquisition date.
D) At the date the land is acquired, it is located in the neighborhood of other property of the organization for which substantially all the use is for achieving the organization's exempt purpose.
E) All of the above are requirements.

Accepted Answer

All of the other requirements listed (A, C, and D) are included in the conditions that must be met for land to be excluded from the definition of debt-financed property. However, there is no requirement related to the fair market value of other land owned by the organization.

Question 19

Which of the following statements are correct?
A) If an exempt organization has annual gross receipts of less than $50,000, it files Form 990-N.
B) Private foundations must file Form 990-PF (Return of Private Foundation).
C) An exempt organization with less than $250,000 in gross receipts may file a Form 990-EZ.
D) Only a. and b. are correct.
E) a., b., and c. all are correct.

Accepted Answer

The answer of Which of the following statements are correct?
A)...

Question 20

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year.
  Is Assist, Inc., classified as a private foundation?

Accepted Answer

The answer of Assist, Inc., a § 501(c)(3) organization, receives...

Quiz 15: Exempt Entities

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax) ?

Which of the following are consequences of tax-exempt status?

Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?

Which of the following statements regarding exempt organization filing requirements is incorrect?

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

Which of the following is one of the requirements that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property, for purposes of the unrelated business income tax?

To maintain exempt status, an organization must do which of the following:

Which of the following statements regarding the disclosure Regulations is correct?

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

Orange, Inc., a private foundation, engages in a transaction with a disqualified person in the amount of $800,000. Calculate the tax on self-dealing. Assume that corrective action is taken so that the additional tax does not apply.

Warmth, Inc., a private foundation, makes an expenditure of $800,000 that should not be made by a private foundation. Calculate the tax on taxable expenditures. Assume that corrective action is taken so that the additional tax does not apply.

For purposes of the unrelated business income tax (UBIT) , land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied. Which of the following is not included in the requirements?

Which of the following statements are correct?

Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year. Is Assist, Inc., classified as a private foundation?