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Exam 15: Exempt Entities

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Question 61

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A corporate payment that qualifies as a qualified sponsorship payment is not subject to the unrelated business income tax (UBIT).

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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The purpose of the excise tax imposed on a private foundation for failure to distribute sufficient levels of income is to motivate the foundation to distribute more of its income for application to exempt purposes and thus be classified as a feeder organization.

Soft,Inc. ,a § 501(c)(3)organization,has been leasing a building to Polar,Inc. ,a taxable entity,for 15 years.The lease terminates in the current tax year.Soft's adjusted basis for the building is $225,000.It sells the building to the Development Partnership,a taxable entity,for $440,000.Selling expenses are $14,000.

One reason for granting an exemption from Federal income tax to certain organizations is the belief that such organizations can perform certain government-like functions,and thereby reduce the financial burden that would otherwise fall on the Federal government.

Which of the following statements regarding a private foundation is not correct?

Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.

Exempt organizations which are appropriately classified as private foundations include churches,educational institutions,and charitable organizations receiving a major portion of their support from the general public or the U.S. ,a state,or a political subdivision thereof.

If an exempt organization is required to file an annual information return,on what form is it filed?

Join,Inc. ,a § 501(c)(3)exempt organization,engages in an excess benefit transaction.The amount of the excess benefit is $200,000.Calculate the amount of the excise tax (first-level tax)imposed under the intermediate sanctions provision.

Hope,Inc. ,an exempt organization,owns a factory building that it leases to a taxable corporation for $100,000 per year.Related expenses for Hope are $30,000.Hope's average acquisition indebtedness on the building is $400,000 and the average adjusted basis is $600,000.Calculate Hope's unrelated debt-financed income and expenses.Then indicate the effect of these items on unrelated business taxable income.

Under certain circumstances,an organization that labels itself as a church may not qualify as an exempt organization.

Which of the following is a requirement for exempt status?

To satisfy the broadly supported provision to avoid classification as a private foundation,the exempt organization must satisfy both an external support test and an internal support test.Under the internal support test,more than one-third of the exempt organization's support for the taxable year must come from gross investment income and unrelated business taxable income.

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?

Why are some organizations exempt from Federal income tax?

Define a private foundation.

Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?

Third Church operates a gift shop in its parish house.The total income of the church is $800,000.Of this amount,$300,000 comes from offerings and $500,000 comes from the net income of the gift shop.The gift shop operations are conducted by five full-time employees.Which of the following statements is correct?

An exempt organization owns a building for which its adjusted basis is $100,000 at the beginning of the year and $90,000 at the end of the year.One-half of the ground floor is leased to a commercial venture for $10,000 per year.The remainder of the first floor and all of the second floor are used by the exempt organization in carrying out its mission.When the exempt organization constructed the building 20 years ago,it incurred a mortgage of $150,000.The final payment of this mortgage was made in December of the current year.The average acquisition indebtedness for the current year is $30,000.Determine to what extent the building is debt-financed property,the amount of debt-financed income,and the portion of debt-financed income that is treated as unrelated business income.