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Exam 23: Exempt Entities

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Question 71

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What tax forms are used to apply for exempt status?

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An organization that is exempt under § 5...

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Question 72

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A church is required to obtain IRS approval for its exempt status if its annual gross receipts exceed $25,000.

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Question 73

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What are the common characteristics of organizations that receive exempt status?

An organization that is a for-profit entity can partially qualify for exempt status.

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 taxes that are imposed on private foundations is,effectively,an audit fee to defray IRS expenses?

Nice,Inc.,a § 501(c)(3)organization,inherited 100% of the stock of Aggressive,Inc.,a for-profit entity,at the beginning of the year.Although Nice plans on selling the stock of Aggressive,a buyer has not yet been located.Aggressive's taxable income for the year is $900,000.Aggressive distributed a dividend of $525,000 to Nice at the beginning of December.Determine the tax consequences for the taxable income and the dividend payment:

Unless the "widely available" provision is satisfied,a § 501(c)(3)exempt organization (excluding churches and private foundations)must make copies of the following available to the general public: Form 990 (Return of Organization Exempt from Income Tax)and Form 1023 [Application for Recognition of Exemption under § 501(c)(3)] or Form 1024 [Application for Recognition of Exemption under § 501(a)].

Match the following statements.

Give an example of the indicated types of exempt organizations.

City,Inc.,an exempt organization,has included among other amounts the following in calculating net unrelated business income of $500,000.

Which of the following statements are correct?

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

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.

A § 501(c)(3)organization exchanges its membership lists with another exempt organization.What are the Federal income tax consequences?

Miracle,Inc.,is a § 501(c)(3)organization involved in medical research.Based on its expectation that proposed legislation will adversely affect the funding supporting its mission,Miracle hires a lobbyist to work in Washington to represent its views. Miracle is eligible for and thus makes the § 501(h)election.It calculates the lobbying nontaxable amount to be $100,000 ($500,000 exempt purpose expenditures ´ 20%).The total lobbying expenditures for the year were $115,000.Calculate Miracle's tax on excess lobbying expenditures.

Arbor,Inc.,an exempt organization,leases land,building,and machinery to a tenant for a 5-year period.The rent income for the land and building is $600,000 per year and that from the related machinery is $90,000 per year.Expenses incurred by Arbor for the land and building during the year are $65,000 and those for the machinery are $38,000.Net unrelated business income,which includes the above rental income and expenses,is $850,000.Calculate Arbor's unrelated business taxable income.

Are all exempt organizations eligible to be recipients of contributions for which the donor qualifies for a charitable contribution deduction?

The excise tax imposed on private foundations for excess business holdings is imposed on investments that enable the private foundation to control publicly-held rather than privately-held businesses.

One of the requirements for an exempt organization being classified as an unrelated trade or business is the "not substantially related" requirement.That is,the trade or business is not substantially related to the exempt purpose of the organization.How can an exempt organization avoid satisfying this requirement?