V. Federal Taxation of Entities - 3. Tax-Exempt Entities

Question 1

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

C. Private Foundations: Tax-exempt organizations that receive less than one-third of their annual support from their members and the general public.

III. Unrelated Business Income—An EO is taxed on its unrelated business income (UBI).

D. Related income (meaning that the income is not subject to tax) includes:

Answer 1

1. An activity where substantially all work is performed for no compensation
2. A business carried on for the convenience of students or members of a charitable, religious, or scientific organization
3. Sale of merchandise/stock received as contributions
4. In general, investment income
5. Rents received from real property

Question 2

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

V. Investment Income Excise Tax—Beginning in 2018, an excise tax equal to 1.4% of net investment income is imposed on private colleges and universities that::

Answer 2

1. Have at least 500 students,
2. Have more than 50% of students are located in the United States, and
3. Have assets equal to at least $500,000 per student (not including assets used in meeting exempt purpose).

Question 3

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

An organization that operates for the prevention of cruelty to animals will fail to meet the operational test to qualify as an exempt organization if

The organization engages in The organization directly participates

insubstantial nonexempt activities in any political campaign

1. Yes Yes
2. Yes No
3. No Yes
4. No No

Answer 3

C.

ngaging in insubstantial nonexempt activities will not cause an exempt organization to lose its exempt status. However, exempt organizations are strictly prohibited from engaging in political campaigns and activities.

Question 4

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

Maple Avenue Assembly, a tax-exempt religious organization, operates an outreach program for the poor in its community. A candidate for the local city council has endorsed Maple’s anti-poverty program. Which of the following activities is (are) consistent with Maple’s tax-exempt status?

I. Endorsing the candidate to members.

II. Collecting contributions from members for the candidate.

1. I only.
2. II only.
3. Both I and II.
4. Neither I nor II.

Answer 4

D.

Exempt organizations cannot endorse political candidates or provide support to them. Therefore, both of these statements are incorrect.

Question 5

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

The private foundation status of an exempt organization will terminate if it

1. Becomes a public charity.
2. Is a foreign corporation.
3. Does not distribute all of its net assets to one or more public charities.
4. Is governed by a charter that limits the organization’s exempt purposes.

Answer 5

1. A private foundation is a tax-exempt organization which receives less than one-third of its annual support from its members and the general public. Therefore, public charities that solicit broad public support do not meet this definition.
2. A private foundation can be organized as a foreign corporation.
3. A private foundation is not required to distribute its entire assets to public charities.
4. A private foundation can limit the purposes that it has chosen to support.

Question 6

V. Federal Taxation of Entities - 3. Tax-Exempt Entities

124. Tax-Exempt Organizations

Which of the following activities conducted by a tax exempt organization will result in unrelated business income?

I. Selling articles made by handicapped persons as part of their rehabilitation, when the organization is involved exclusively in their rehabilitation.

II. Operating a grocery store almost fully staffed by emotionally handicapped persons as part of a therapeutic program.

1. I only.
2. II only.
3. Both I and II.
4. Neither I nor II.

Answer 6

D.

Neither activity produces unrelated business income because the activities generating the revenue relate to the tax-exempt purpose of the organization. (Articles were made as part of the rehabilitation process and the store was being operated for the purpose of creating a therapeutic process for the participants.)