tax problems - questin and answer ,.,.23

41. LO.6 Perch, Inc., an exempt organization, has unrelated business taxable income of $4 million.
a. Calculate Perch’s UBIT.
b. Prepare an outline of a presentation you are going to give to the new members of
Perch’s board on why Perch is subject to the UBIT even though it is an exempt organization.

42. LO.6 For each of the following organizations, determine its UBTI and any related UBIT.
a. AIDS, Inc., an exempt charitable organization that provides support for individuals with AIDS, operates a retail medical supply store open to the general public. The net income of the store, before any Federal income taxes, is $305,000.
b. The local Episcopal Church operates a retail gift shop. The inventory consists of the typical items sold by commercial gift shops in the city. The director of the gift shop estimates that 80% of the gift shop sales are to tourists and 20% are to church members.
The net income of the gift shop, before the salaries of the three gift shop employees and any Federal income taxes, is $300,000. The salaries of the employees total $80,000.
c. Education, Inc., a private university, has vending machines in the student dormitories and academic buildings on campus. In recognition of recent tuition increases, the university has adopted a policy of merely trying to recover its costs associated with the vending machine activity. For the current year, however, the net income of the activity, before any Federal income taxes, is $75,000.

43. LO.6 For each of the following organizations, determine its UBTI and any related
UBIT.
a. Worn, Inc., an exempt organization, provides food for the homeless. It operates a thrift store that sells used clothing to the general public. The thrift shop is solely staffed by four salaried employees. All of the clothes it sells are received as contributions.
The $100,000 profit generated for the year by the thrift shop is used in Worn’s mission of providing food to the homeless.
b. Small, Inc., an exempt organization, recorded gross unrelated business income of $900 and unrelated business expenses of $400.

c. In Care, Inc., is a §501(c)(3) exempt organization. It owns a convenience store and gas pumps, which it received as a bequest from a patron. The store/gas pumps entity is organized as StopBy, a C corporation. Because StopBy is profitable, In Care hires a manager and several employees to run the entity. For the current year, StopBy’s profit is $640,000. All of this amount is distributed by StopBy to In Care to use in carrying out its exempt mission.

44. LO.6 Save the Squirrels, Inc., a § 501(c)(3) organization that feeds the squirrels in municipal parks, receives a $250,000 contribution from Animal Feed, Inc., a corporation that sells animal feed. In exchange for the contribution, Save the Squirrels will identify
Animal Feed as a major supporter in its monthly newsletter. Determine Save the
Squirrels’s UBTI and any related UBIT under the following independent assumptions.
a. Save the Squirrels receives no other similar payments.
b. Save the Squirrels agrees to identify Animal Feed as a major supporter and to include a half-page advertisement for Animal Feed products in its monthly newsletter as a result of the contribution.

45. LO.6 Fish, Inc., an exempt organization, reports unrelated business taxable income of $500,000 (excluding the deduction for charitable contributions). During the year, Fish makes charitable contributions of $54,000, of which $38,000 are associated with the unrelated trade or business.
a. Calculate Fish’s unrelated business taxable income (UBTI).
b. Assume that the charitable contributions are $41,000, of which $38,000 are associated with the unrelated trade or business. Calculate the UBTI.

46. LO.6 Rabbit, Inc., an exempt organization, reports net unrelated business income of $75,000, excluding any rent income received. Rabbit owns two buildings that are leased to tenants. The net rent income on the first building is $32,000, and that on the second building is $35,000. The lessee of the first building is unrelated to Rabbit, whereas the lessee of the second building is a 100% owned for-profit subsidiary. Calculate Rabbit’s unrelated business taxable income.

47. LO.6 Save, Inc., an exempt organization, sells the following assets during the tax year.
Asset Gain (Loss) Use
Land and building $100,000 In exempt purpose
Land 25,000 In exempt purpose
Equipment (12,000) Leased to a taxable entity
Automobile (9,000) Leased to a taxable entity
Determine the effect of these transactions on Save’s unrelated business taxable income.

48. LO.6 Fix, Inc., an exempt organization, owns a one-story building. Fix’s adjusted basis for the building is $900,000. Of the building’s total area of 10,000 square feet, the front portion (approximately 3,000 square feet) is used in carrying out Fix’s exempt purpose.
The remainder of the building is leased to Belts, Inc., a taxable entity, for $300,000 each year. Belt uses the space to store its inventory.
The unamortized balance of a mortgage relating to the original acquisition of the building by Fix is $600,000. Determine the portion of the building’s adjusted basis that is treated as debt-financed property and the amount of the mortgage that is acquisition indebtedness.

49. LO.7 Seagull, Inc., a § 501(c)(3) exempt organization, uses a tax year that ends on
October 31. Seagull’s gross receipts are $600,000, and related expenses are $580,000.
a. Is Seagull required to file an annual Form 990?
b. If so, what is the due date?

50. LO.8 Historic Burg is an exempt organization that operates a museum depicting eighteenth-century life. Sally gives the museum an eighteenth-century chest that she has owned for 10 years. Her adjusted basis is $55,000, and the chest’s appraised value is $100,000. Sally’s adjusted gross income is $300,000. Calculate Sally’s charitable contribution deduction if Historic Burg is:
a. A private operating foundation (deduct FMV, 30% AGI limit).
b. A private nonoperating foundation (deduct basis, 50% AGI limit).