Exempt Organizations

Question 1

Section 501(c)(1) Corporations

Answer 1

Created by an act of Congress

Question 2

Section 501(c)(2) Corporations

Answer 2

Organized for an exclusive purpose to hold title to property, collect income from the property, and turn over the net income to an exempt organization.

Question 3

Section 501(c)(3) Corporations

Answer 3

Be familiar with the ways they can lose tax-exempt status.

Question 4

Section 509 Private Foundations

Answer 4

Be familiar with the types that are excluded from this classification and the various means of termination.

Question 5

Unrelated Business Income (UBI)

Answer 5

Unrelated business income (UBI) is the gross income from any unrelated trade or business “regularly” carried on, minus business deductions directly connected therewith.
UBI is:
a. derived from an activity that constitutes a trade or business;
b. regularly carried on; and
c. not substantially related to the organization’s tax exempt purposes.

Question 6

UBI does not

Answer 6

include any activity where all of the work is performed by unpaid workers (volunteers).

Question 7

Taxation of UBI

Answer 7

a. $1,000 Specific Deduction—Only UBI in excess of $1,000 is subject to tax.
b. Excluded Items of Income—Be familiar with the certain types of “unrelated” income that are specifically excluded from tax.

Question 8

Annual Return Requirement

General

Answer 8

Due /may 15
An annual information return (Form 990) stating gross income, receipts, contributions, disbursements, etc., is required of most organizations exempt from tax under Code Section 501 and is open to public inspection.

Question 9

Annual Return Requirement

Exceptions

Answer 9

Be familiar with the three types of exempt organizations that do not have an annual filing requirement of a Form 990/990-EZ information return with the IRS.

a. Religious or Internally Supported Organizations
b. Certain Organizations that normally have less than $5,000 in gross receipts
c. Organizations that Normally Have less than $50,000 in gross receipts

C hurches
H high schools - religious
R eligious orders
I nternal support auxiliaires
S ocieties - missionary related
T ax exempt - organized by congress