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Exam 15: Exempt Entities

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Question 1

Multiple Choice

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Which of the following excise taxes are imposed on the private foundation because it engages in prohibited transactions?

A) Tax on investment income.
B) Tax on self-dealing.
C) Tax on failure to distribute income.
D) Only b. and c.
E) a., b., and c.

F) B) and D)
G) B) and C)

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Question 2

True/False

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Revenue generated by an exempt organization from the distribution of low-cost items is not income from an unrelated trade or business.

A) True
B) False

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Question 3

Multiple Choice

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Maroon, Inc., a tax-exempt organization, leases a building and equipment to Brown Partnership. The rental income from the building is $100,000 and from the equipment is $9,000. Rental expenses are $40,000 for the building and $4,000 for the equipment. What adjustment must be made to net unrelated business income?

If an exempt organization conducts a trade or business that is regularly carried on by the organization, it is subject to the unrelated business income tax (UBIT).

Identify the components of the tax model for unrelated business taxable income.

Tan, Inc., a tax-exempt organization, has $65,000 of net unrelated business income. Total charitable contributions (all associated with the unrelated trade or business) are $7,500. Assuming that the $7,500 was deducted in calculating net unrelated business income, what is Tan's unrelated business taxable income?

The trade or business consists of selling merchandise, and substantially all of the merchandise has been received as gifts or contributions.

An exempt entity in no circumstance is subject to Federal income tax.

Tax on excess business holdings

Match the following statements. a. Distribution of such items is not considered an unrelated trade or business if they are "low-cost items". b. Is considered an unrelated trade or business if the amount received is contingent upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. c. Is considered an unrelated trade or business if can be conducted by commercial (for-profit) entities. d. A trade or business that consists of either renting or exchanging these with another exempt organization is not an unrelated trade or business. -Bingo games

If the unrelated business income of an exempt organization is $25,000 or less, the unrelated business income tax (UBIT) will be $0.

In what types of organizations does the UBIT apply?

Robin, Inc., an exempt organization, acquired a building for $400,000 which it will lease to ABC, Inc., for $40,000 annually. To finance the acquisition of the building, Robin secures a mortgage on it of $250,000. Advise Robin as to whether it has any unrelated debt-financed income or deductions.

Match the following statements. -Tax on self-dealing

Which of the following are exempt organizations?

Match the following statements with the correct description. -University of Virginia

An eligible § 501(c)(3) organization has made the § 501(h) election to participate in lobbying on a limited basis. If the ceiling on lobbying established in § 501(h) (lobbying nontaxable amount) is exceeded, what are the potential tax consequences to the exempt organization?

In calculating unrelated business taxable income, the exempt organization is permitted to deduct only the charitable contributions associated with the unrelated trade or business.

Plus, Inc., is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus, Inc., is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?

Match the following statements. -Feeder organization