CHAPTER 23 EXEMPT ENTITIES

1. All exempt organizations which are subject to the unrelated business income tax must file Form 990-T (Exempt Organization Business Income Tax Return).

a. True

b. False

2. 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)].

a. True

b. False

3. Which of the following qualify as exempt organizations?

a. Federal and related agencies.

b. Religious, charitable, and educational organizations.

c. Civic leagues.

d. Social clubs.

e. All of the above can be exempt from tax.

4. Which of the following are exempt organizations?

a. National Football League (NFL).

b. American Bankers Association (ABA).

c. Professional Golfers Association (PGA).

d. Only a. and c.

e. a., b., and c.

5. Which of the following is notan example of an exempt organization?

a. Religious, charitable, or educational organization.

b. Voluntary employees’ beneficiary association.

c. Labor, agricultural, or horticultural organization.

d. Stock exchange.

e. All of the above can be exempt from tax.

6. Which of the following are organizations exempt under § 501(c)(3)?

a. Girl Scouts of America.

b. Washington and Lee University.

c. Veterans of Foreign Wars (VFW).

d. Only a. and b. are § 501(c)(3) organizations.

e. All of the above are § 501(c)(3) organizations.

7. Which of the following attributes are associated with exempt organizations?

a. Organization serves some type of common good.

b. Organization is not a for profit entity.

c. Net earnings do not benefit the members of the organization.

d. Organization does not exert political influence.

e. All of the above statements are true.

8. 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:

a. $0.

b. $12,500.

c. $50,000.

d. $60,000.

e. None of the above.

9. Which of the following statements is incorrect?

a. No exempt organizations can engage in any lobbying activities.

b. Certain exempt organizations can elect to engage in lobbying activities on a limited basis.

c. Churches can engage in lobbying activities on an unlimited basis because of the separation of church and state provision.

d. Only b. and c. are incorrect.

e. Only a. and c. are incorrect.

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

a. Attempt to subject all or part of the organization’s income to Federal income tax.

b. Revoke the exempt status of the organization.

c. Impose intermediate sanctions in the form excise taxes.

d. Only a. and b.

e. a., b., and c.

11.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.

12.Which of the following statements is correct?

a. A feeder organization is a division of a tax-exempt organization and it is notsubject to the Federal income tax.

b. A feeder organization is a tax-exempt organization whose purpose is to provide food to underprivileged children.

c. A feeder organization is a taxable organization whose purpose is to provide reduced cost meals to its employees that are excluded from the employee’s gross income.

d. Only a. and b. are correct.

e. None of the above statements is correct.

13.Which of the following activities is not subject to the feeder organization rules?

a. At least 80% of the net income of the for-profit entity is contributed to the exempt organization for a consecutive three-year period.

b. A trade or business where substantially all the work is performed by volunteers.

c. A trade or business of selling merchandise where substantially all of the merchandise has been received as contributions or gifts.

d. Only b. and c.

e. a., b., and c.

14.A § 501(c)(3) organization that otherwise would be classified as a private foundation can avoid such classification if

it satisfies:

a. Only an external support test.

b. Only an internal support test.

c. Both an external support test and an internal support test.

d. An external support test, an internal support test, and a good faith test.

e. None of the above.

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

a. First Methodist Church.

b. University of Richmond.

c. Williamsburg Community Hospital.

d. Salvation Army.

e. None of the above.