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tax problems - questin and answer,.,. ch 23




Question;16. LO.5 Although private foundations generally are exempt from Federal income tax, they may be subject to two types of taxes. Identify these taxes, and discuss why they are imposed on private foundations.17. LO.5 Sunset, Inc., a ? 501(c)(3) exempt organization that is classified as a private foundation, generates investment income of $500,000 for the current tax year. This amount represents 18% of Sunset?s total income.a. What type of tax is imposed on Sunset associated with its investment income?b. Is the receipt of this investment income likely to result in Sunset losing its exempt status?Why or why not?c. Would your answers in (a) and (b) change if the $500,000 represented greater than50% of Sunset?s total income? Explain.18. LO.4, 5 Really Welcome, Inc., a tax-exempt organization, receives 30% of its support from disqualified persons. Another disqualified person has agreed to match this support if Really Welcome will appoint him to the organization?s board of directors. What tax issues are relevant to Really Welcome as it makes this decision?19. LO.6 Winston recently became the treasurer of Homeless, Inc., a ? 501(c)(3) organization that feeds the homeless. One of the entity?s directors has proposed that Homeless purchase and operate a fast-food franchise as part of Homeless, Inc., to raise additional revenue (a projected increase of 45%) to carry out its tax-exempt mission. Because the earnings generated by the fast-food franchise would be tax-exempt, substantial additional revenue would be provided. How should Winston respond? 20. LO.6 What is the purpose of the unrelated business income tax (UBIT)?21. LO.6 What type of activity by a church is likely to be subject to the unrelated business income tax? What factors must be present for this activity to be classified as an unrelated trade or business?22. LO.6 An exempt municipal hospital operates a pharmacy that is staffed by a pharmacist24 hours per day. The pharmacy serves only hospital patients. Is the pharmacy an unrelated trade or business? Explain.23. LO.6, 8 An exempt hospital receives as a gift from a wealthy donor all of the shares of stock of Compute, Inc., a retail computer chain. Because the chain is very profitable and its CEO has offered to continue to manage it, the hospital has decided to operate the chain rather than sell the stock. All of the chain?s profits will be used in carrying out the exempt mission of the hospital.Advise the hospital on whether better Federal income tax consequences can be achieved by operating the chain as a subsidiary or as a division of the hospital corporation.24. LO.1, 6 To which of the following tax-exempt organizations may the UBIT apply?a. Red Cross.b. Salvation Army.c. United Fund.d. College of William and Mary.e. Rainbow, Inc., a private foundation.f. Louisiana State University.g. Colonial Williamsburg Foundation.h. Federal Land Bank.i. University of Virginia Hospital.25. LO.6 Discuss the significance of the ?regularly carried on? test as it relates to the UBIT.26. LO.6 An exempt organization is considering conducting bingo games on Thursday nights as a way of generating additional revenue to support its exempt purpose. Before doing so, however, the president of the organization has come to you for advice regarding the effect on the organization?s exempt status and whether the net income from the bingo games will be taxable. Identify the relevant tax issues.27. LO.6 Define each of the following with respect to unrelated debt-financed property.a. Debt-financed income.b. Debt-financed property.c. Acquisition indebtedness.d. Average acquisition indebtedness.e. Average adjusted basis.28. LO.1, 7 Tom is the treasurer of the City Garden Club, a new garden club. A friend who is the treasurer of the garden club in a neighboring community tells Tom that it is not necessary for the garden club to file a request for exempt status with the IRS. HasTom received correct advice? Explain.29. LO.1, 7 Abby Sue recently became the treasurer of First Point Church. The church has been in existence for three years and has never filed anything with the IRS.a. Identify any reporting responsibilities that Abby Sue might have as church treasurer.b. Would your answer in (a) change if First Point Church had been in existence for more than 10 years? Explain.c. Would your answer in (a) change if First Point Church had reported some unrelated business income? Explain.30. LO.7 Shane and Brittany are treasurers for ? 501(c)(3) exempt organizations. Neither exempt organization is a church. Each year, Shane?s exempt organization files a Form990 while Brittany?s exempt organization files a Form 990?PF. Discuss the public disclosure requirements for each exempt organization.


Paper#38706 | Written in 18-Jul-2015

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