Chapter 8-Tax Exempt Organizations Flashcards
what are some tax exempt organizations that are eligible under the tax code that are 501(c)?
- organizations with specific charitable, educational or scientific intent
- religious organizations
- social and recreation clubs (fraternity or country clubs)
- credit unions
- condo associations
- labor unions (like united auto workers
can organizations that attempt to influence political legislation or support specific political candidates be tax exempt?
no
if an organization is not expected to receive more than $50,000 in any of the succeeding 3 years, what form should they fill out?
1023 EZ
what are private foundations?
charitable organizations that receive less than 1/3 of support from the general public
what are public charities?
charitable organizations that receive more than 1/3 of support from the general public
what is a feeder organization and the tax rules for it?
an organization operated as a business for profit but that transfers all of its net earnings to charitable orgs; and it does not qualify as an exempt charity
what are the filing requirements for an organization to be exempt?
a written application must be filed with the IRS requesting approval as an exempt organization within 15 MONTHS from the end of the month in which they were organized. the organization must operate in the form of a trust or corporation
in regards to exempt classification; what are the restrictions associated with it?
an organization must limit its activities to those that fit the classification of exempt organization.
the exempt status will terminate when it no longer fits the category that it was setup as with the irs; and the organization must reapply with the irs to fit the category that it has become based on the type of receipts received (meaning public receipts or private receipts)
who must file a form 990?
the form 990 is an annual informational return identifying its sources of revenue if gross receipts exceed $50,000 in a year. this requirement does not apply to religious organizations (church) however due to the constitutional prohibition on government regulation of religious activities.
Due date is May 15
what form does private organizations have to file?
form 990-PF and may be subject to certain excise taxes on various investment income and transactions that occur with the person who funded the organization.
Due date is May 15
what is unrelated business income?
it refers to income obtained from the operations of business activities not associated with the exempt purpose of the organization and it specifically excludes these: THESE ARE TAX EXEMPT!!
- legal games of chance used to raise funds such as bingo
- activities only carried out on an INTERMITTENT basis, such as annual charity auctions
- business activities related to the organizations purpose such as sales of educational materials to members of a professional organization established to maintain and improve the skills of its members ex. cafeteria
- most investment income
- activities that are staffed entirely by volunteers working without pay
- the sale of merchandise that was received as a gift or contribution
- convenience of members, employees or students (ex. cafeteria or bookstore)
what must be reported on the form 990 that is due on May 15?
-identify contributors
-identify amount contributed
-identify gross receipts/distributions
The following are not required to file the form 990
**Church
**gross receipts are less than $50,000
what must be reported as unrelated business income?
- example would be a tattoo parlor @ a church or school
- it is taxed as either a corporation or trust
- either goods (goodwill) or services (hospital gift shop) have to be free in order to not be taxed on unrelated business income.
- exceptions include campus bookstore and cafeteria; related for the benefit of the members and students.
The formula to calculate the unrelated business taxable income is as follows:
Unrelated business income
-expenses
-$1,000
=unrelated business taxable income and is either taxed at the corporations rate if it is listed as corporation or at the trust rate if it is listed as a trust.
what is the organizational test?
the organizational test requires the articles of organization for a tax exempt organization to specifically limit its activities to those that fit the classification of exempt organization it used as its basis for its application to the irs. a tax exempt organization does not need to state in its articles of organization that an information return should be filed annually with the internal revenue service.
