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Exam 23: Exempt Entities

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Question 61

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Unrelated debt-financed income, net of the unrelated debt-financed deductions, is subject to the unrelated business income tax only if the exempt organization is a private foundation.

A) True
B) False

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Question 62

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While certain § 501(c)(3) organizations can elect to be permitted to lobby on a limited basis, churches are not eligible to make a § 501(h) election.

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B) False

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Question 63

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The Dispensary is a pharmacy that is part of a § 501(c)(3) hospital.Its primary mission is to dispense medicines for hospital patients.In addition, the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital.It does this for the dual purpose of convenience to the former patients (i.e., the closest pharmacy is 6 miles away), and to ensure that the former patients receive the medicines that have been prescribed for them. The Dispensary carefully carries out the policy of the hospital board that no more than 20% of its gross revenues come from former-patient medicine sales.If necessary, in December of each year, sales to former patients are curtailed to assure compliance with this policy.Sales revenue from each of the two sources is as follows for 2011. Calculate the amount of The Dispensary's unrelated business gross income.

Which requirements must be satisfied for an exempt organization to be classified as an unrelated trade or business? Is being classified as an unrelated trade or business good or bad?

City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000. The only expenses incurred associated with these items are rental expenses (which includes depreciation of $10,000) of $15,000.Calculate City, Inc.'s UBTI.

Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.

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?

George is running for mayor of Culpepper. The members of Third Church adamantly oppose his candidacy. They would like to run a political advertisement in the local newspaper opposing his candidacy. The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George; it does not support his opponent.

Which of the following § 501(c) (3) exempt organizations is appropriately classified as a private foundation?

Wonder, Inc., a private foundation, makes a speculative investment of $800,000 that puts the foundation assets at risk.Calculate the tax on jeopardizing investments.Assume that corrective action is taken so that the additional tax does not apply.

A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 50% of the merchandise sold had been received as a contribution.

For purposes of the unrelated business income tax (UBIT) , land that is acquired by the exempt organization for later exempt-use is excluded from the definition of debt-financed property if certain requirements are satisfied.Which of the following is not included in the requirements?

If an organization qualifies for exempt status for Federal income tax purposes, it is exempt from all Federal income taxes.

Match the following statements with the correct description.

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?

An exempt organization can avoid classification as a private foundation if it is broadly publicly supported.To be broadly publicly supported, which of the following is required?

The League of Women Voters is a § 501(c)(3) organization.

Teal, Inc., is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?

Help, Inc., a tax-exempt organization, incurs lobbying expenses of $275,000 during the tax year.Help is eligible for and makes the § 501(h) lobbying expenditure election.During the year, Help spends $1,200,000 carrying out its exempt mission.

Soft, Inc., a § 501(c)(3) organization, has been leasing a building to Ice, Inc., a taxable entity, for 12 years.The lease terminates in the current tax year.Soft's adjusted basis for the building is $350,000.It sells the building to the Realty Partnership, a taxable entity, for $625,000.Selling expenses are $37,500.