M2 Tax-Exempt Organizations

Question 1

MCQ-06190
Which of the following types of business may not qualify for a 501(c)(3) exemption from federal income taxes?

Answer 1

A Partnership

Partnerships are not referred to in IRC Section 501(c)(3), which provides for corporations, community chests, funds, and foundations to be organizations eligible for exemption
from federal income taxes.

Question 2

MCQ-12529
Which of the following types of organizations is considered a public charity for purposes of the charitable contribution deduction?

Answer 2

Religious organizations

Religious organizations are considered an Internal Revenue Code Section 501(c)(3) public charity for purposes of the charitable contribution deduction.

Question 3

MCQ-15380
Which of the following types of income are included in a tax-exempt organization’s unrelated business income?

Answer 3

Rent from real property where substantial personal services are provided.

Although rent from real property is generally excluded from a tax-exempt organization’s unrelated business income, this exclusion does not apply when personal services are
also provided to the occupant who is paying for occupying space (e.g., hotel rooms).

Question 4

MCQ-06179
Which of the following statements is correct regarding the unrelated business income of exempt organizations?

Answer 4

An unrelated business does not include any activity in which all the work is performed for the organization by unpaid volunteers.

Question 5

MCQ-06181
Which of the following activities regularly carried out by an exempt organization will not result in unrelated business income?

Answer 5

The sale of a trade association of publications used as course materials for the association’s seminars, which are oriented towards its members.

Unrelated business income is:
1. Derived from an activity that constitutes a trade or business,
2. Is regularly carried on, and
3. Is not substantially related to the organization’s tax-exempt purpose.

An unrelated business does not include any activity where all the work is performed for the organization by unpaid volunteers. Thus, using unpaid volunteers makes that business or activity “related.”

Question 6

MCQ-06186
Which of the following activities regularly conducted by a tax-exempt organization will result in unrelated business income?

I. Selling articles made by disabled 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 disabled persons as part of a therapeutic program

Answer 6

Neither I nor II

Unrelated business taxable income must be derived from an activity that constitutes a trade or business that is regularly carried on and is not substantially related to the organization’s tax-exempt purpose. Both of the above options appear to be substantially related to the organization’s tax-exempt purpose
and, therefore, are not taxable.