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Exam 15: Exempt Entities

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Question 41

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Which of the following statements regarding intermediate sanctions is correct?

A) Intermediate sanctions are self-assessing (i.e., calculated and paid by the taxpayer rather than being imposed by the IRS) .
B) The excise tax is imposed on the exempt organization and on disqualified persons.
C) Both a first-level tax and a second-level tax may apply.
D) The corporate tax rates apply in calculating the amount of the tax liability.
E) None of the above is correct.

F) D) and E)
G) A) and B)

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Question 42

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A church is one of the types of exempt organizations.

A) True
B) False

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Question 43

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Match the following statements. -Tax on self-dealing

The income from a bingo game or a casino game conducted by an exempt organization may be unrelated business income.

Garden, Inc., a qualifying § 501(c) (3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

Define a qualified corporate sponsorship payment.

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?

The trade or business of selling merchandise where substantially all of the merchandise has been received as contributions or gifts is not subject to the unrelated business income tax.

For each of the following taxes which are imposed on private foundations and/or Foundation Managers, match the appropriate initial tax or additional tax. -Tax on jeopardizing investments

Match the following statements. -Corporate sponsorship payments

The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is not classified as a private foundation.

Spirit, Inc., a § 501(c)(3) organization, is classified as a private foundation. It reports investment income of $175,000. Calculate Spirit's tax on its investment income.

The excise tax imposed on a private foundation's investment income can be imposed as an initial (first-level) tax but cannot be imposed as an additional (second-level) tax.

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

Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign. An executive, who recently completed an executive MBA degree program, recommends that personal address labels be included as an additional way to motivate the potential donor to contribute. The value of these labels is $9.95 per potential donor. What is the effect of the inclusion of the address labels on Watch's unrelated business income?

Describe how an exempt organization can be eligible to make lobbying expenditures without losing its tax exemption.

Match the following statements. -Private foundation

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.

Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis. An example of such an exempt organization is a church.

A feeder organization is exempt from Federal income taxation because it carries on a trade or business for the benefit of an exempt organization and remits its profits to the exempt entity.