R3 Exempt Organizations Flashcards Preview

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Flashcards in R3 Exempt Organizations Deck (8)
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1
Q

Other than 501(c)(1) corporation, which is created through an act of congress, what are the general requirements for a corporation to obtain tax-exempt status?

A
  1. Make a written application for exempt status
  2. Be approved by the IRS
  3. Become incorporated under the standard procedures
  4. Issue capital stock
  5. Include in the articles of organization the facts that the articles limit the purpose of the entity to the charitable / exempt purpose.
2
Q

What are the general requirements for a 501(c)(3) corporation to maintain its tax-exempt status?

A
  1. No part of the net earnings may inure to the benefit of any private foundation or individual.
  2. No substantial part of the activities may be nonexempt activities (e.g. propaganda or influencing legislation)
  3. The organization may not directly participate or intervene in any political campaign

Note: the organization must also file the required annual information tax forms (if applicable). If the organization fails to file for 3 consecutive years, the tax-exempt status will be revoked.

3
Q

When does a private foundation terminate involuntarily?

A
  1. It becomes a public charity (i.e. it cannot be both

2. It commits repeated violations or willful and flagrant violation of any of the private foundation provisions.

4
Q

What are the categories of Private foundations that are excluded from the provisions of section 509 (i.e. they are deemed “public organizations)

A
  1. Maximum (50% type) charitable donees
  2. broadly publicly support organizations receiving more than one-third of their annual support from members of the public less than one-third from investment income and unrelated business income
  3. Supporting organizations
  4. Public safety testing organizations
5
Q

What is the definition of “unrelated business income” UBI?

A

UBI is gross income from any unrelated trade or business “regularly” carried on, minus business deductions connected therewith UBI:

  1. Derived from an activity that constitutes a trade or business
  2. Regularly carried on and
  3. Not substantially related to the organization’s tax-exempt purpose
6
Q

How is UBI taxed for an exempt organization?

A

Although an organization may have tax-exempt status, the organization may become subject to regular corporate income tax on its unrelated business income (UBI)

  1. The organization is allowed a $1,000 specific deduction from UBI, thus only UBI in excess of $1,000 is subject to tax
  2. Further, there are other types of income that are specifically excluded from tax
7
Q

What are some items of income (other than the $1,000 that is specifically excluded from tax that are excluded from tax for the exempt organization

A
  1. Royalties, dividends, interest, and most annuities
  2. Rent from real property and rent from personal property leased with real property (subject to limitations), other than income from debt-financed property
  3. Gains and losses from sale/exchange of property not held primarily for sale to customers
  4. Income from research of a college or hospital
  5. Income from labor unions used to establish exclusive-use facilities
  6. Income from labor unions used to establish exclusive-use facilities.
  7. Activities limited to exempt organizations by state law
  8. Income from the exchange or rental of membership lists.
8
Q

What are the 3 types of exempt organizations that do not have an annual filing requirement of an information return with the IRS?

A
  1. Churches and exclusively religious activities of a religious order or internally supported auxiliaries
  2. Certain organizations (educational organizations, religious organizations, public-type charities, fraternal organizations, and those organized to prevent cruelty to children or animals) that normally have less than $5,000 in annual gross receipts
  3. Organizations that normally have less than $50,000 in annual gross receipts