STU11

Question 1

Most organizations exempt from tax under Sec. 501(a) must file an annual information return on Form 990, Return of Organization Exempt from Income Tax. Those excepted from the requirement are

Answer 1

1. A church or church-affiliated organization
2. An exclusively religious activity or religious order
3. An organization (other than a private foundation) having annual gross receipts that are not more than $50,000
4. A stock bonus, pension, or profit-sharing trust that qualified under Sec. 401
5. A Keogh plan whose total assets are less than $100,000

Question 2

Under Sec. 444 of the Internal Revenue Code, certain partnerships can elect to use a tax year different from their required tax year. One of the conditions for eligibility to make a Sec. 444 election is that the partnership must

Answer 2

A partnership may elect, under Sec. 444, a fiscal year other than normally required and for which a business purpose does not exist. The fiscal year elected must be one with no more than a 3-month deferral period, i.e., the number of months between the beginning of the tax year selected and the end of the required tax year. For the election to be effective, a payment is required that approximates the tax the partners would have paid if the entity had used its required year.

Question 3

In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is?

Answer 3

Unless an exception applies, the partnership must use a required tax year. A required tax year is the first of (1) the tax year of partners owning more than 50% of partnership capital and profits if they have the same year as determined on the first day of the partnership’s tax year, (2) the same tax year of all principal partners (i.e., partners owning 5% or more of capital and profits), or (3) the least aggregate deferral tax year. In the absence of an election to adopt an annual accounting period, the partnership must use the tax year of partners owning more than 50% interest in profits and capital.

Question 4

Describe unrelated business income.

Answer 4

Unrelated business income (UBI) is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose constituting the basis for an organization’s tax-exempt status.