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Exam 23: Exempt Entities

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Question 71

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Match the following statements. -Tax on self-dealing

A) Carries on a trade or business for the benefit of an exempt organization, remits its profits to the exempt organization, and is not exempt from Federal income tax.
B) May be subject to some Federal income taxation and classification may adversely affect amount of charitable contributions received.
C) Tax imposed for engaging in transactions with disqualified persons.
D) Enables certain exempt organizations to engage in lobbying activities on a limited basis.
E) Tax imposed on investments that enable a private foundation to control unrelated businesses.

F) A) and B)
G) B) and D)

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Question 72

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All exempt organizations which are subject to the unrelated business income tax must file Form 990-T (Exempt Organization Business Income Tax Return).

A) True
B) False

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Question 73

Multiple Choice

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Which of the following § 501(c) (3) exempt organizations is appropriately classified as a private foundation?

Blue, Inc., receives its support from the following sources. $\begin{array}{llr} \text { Governmental unit A , for services rendered } &\$18,000\\ \text {General public, for services rendered } &25,000\\ \text {Gross investment income } &8,000\\ \text { Contributions from individual substantial contributors (disoulalified persons) } &19,000\\\\\text { Which of the following statements is correct? }\end{array}$

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

First Americans, Inc., a § 501(c)(3) organization, operates a museum which depicts the lives of a tribe of Native Americans. It charges an admission fee, but also finances its operations through endowment income, contributions, and gift shop sales. The gift shop is operated by 50 volunteers and the museum is operated by 15 employees. Revenue by source is: $\begin{array}{lr}\text { Admission fees } & \$ 700,000 \\\text { Endowment income } & 75,000 \\\text { Gift shop net income } & 300,000 \\\text { Contributions } & 100,000\end{array}$ a. Determine the amount of First Americans' unrelated business income. b. Determine the amount of First American's unrelated business income tax (UBIT).

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

Federal agencies exempt from Federal income tax under § 501(c)(1) are not subject to the unrelated business income tax (UBIT).

Match the following statements. -Bingo games

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

Match the following tax forms. -Form 990

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%).

Radio, Inc., an exempt organization, trains disabled individuals to be radio announcers. Rather than hold a traditional graduation exercise, the graduates compete in a radio announcer contest. Such activities are held four times each year. An admission fee of $10 is charged to the general public to attend the contest. Eight hundred people attended the contest this year, and prizes of $2,000 were given to the top 3 graduates. Calculate the amount of Radio's unrelated business income from this activity.

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

Match the following tax forms. -Form 2758

Which of the following statements regarding the unrelated business income tax is correct?

Which of the following excise taxes are imposed on the private foundation because it engages in prohibited transactions?

The due date for the Exempt Organization Business Income Tax Return (Form 990-T) is the fifteenth day of the third month after the end of the taxable year.

A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 80% of the merchandise sold had been received as a contribution.

Why are some organizations exempt from Federal income tax?