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Question;1746. CHAPTER;15?EXEMPT ENTITIES Question PR #21;Arbor, Inc., an exempt organization, leases land, building, and machinery to a;tenant for a 5-year period. The rent income for the land and building is;$600,000 per year and that from the related machinery is $90,000 per year.;Expenses incurred by Arbor for the land and building during the year are;$65,000 and those for the machinery are $38,000. Net unrelated business income;which includes the above rental income and expenses, is $850,000. Calculate;Arbor?s unrelated business taxable income.;1747. CHAPTER;15?EXEMPT ENTITIES Question PR #22;Woeful, Inc., a tax-exempt organization, leases a building and machinery to;Purple Partnership. The rental income from the building is $180,000, with;related expenses of $70,000. The rental income from the machinery is $12,000;with related expenses of $3,000. What adjustment must be made to net unrelated;business income?;1748. CHAPTER;15?EXEMPT ENTITIES Question PR #23;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.;1749. CHAPTER;15?EXEMPT ENTITIES Question PR #24;Hope, Inc., an exempt organization, owns a factory building that it leases to a;taxable corporation for $150,000 per year. Related expenses for Hope are;$40,000. Hope?s average acquisition indebtedness on the building is $500,000;and the average adjusted basis is $750,000. Calculate Hope?s unrelated;debt-financed income and expenses. Then indicate the effect of these items on;unrelated business taxable income.;1750. CHAPTER;15?EXEMPT ENTITIES Question ES #1;Why are some organizations exempt from Federal income tax?;1751. CHAPTER;15?EXEMPT ENTITIES Question ES #2;Are;organizations that qualify for exempt organization status completely exempt;from Federal income taxation?.;1752. CHAPTER;15?EXEMPT ENTITIES Question ES #3;What are the common characteristics of organizations that receive exempt;status?;1753. CHAPTER;15?EXEMPT ENTITIES Question ES #4;Discuss benefits for which an exempt organization may be eligible, other than;exemption from Federal income tax.;1754. CHAPTER;15?EXEMPT ENTITIES Question ES #5;Are all exempt organizations eligible to be recipients of contributions for;which the donor qualifies for a charitable contribution deduction?;1755. CHAPTER;15?EXEMPT ENTITIES Question ES #6;Describe how an exempt organization can be eligible to lobby.;1756. CHAPTER;15?EXEMPT ENTITIES Question ES #7;An eligible ? 501(c)(3) organization has made the ? 501(h) election to;participate in lobbying on a limited basis. If the ceiling on lobbying;established in ? 501(h) (lobbying nontaxable amount) is exceeded, what are the;potential tax consequences to the exempt organization?;1757. CHAPTER;15?EXEMPT ENTITIES Question ES #8;What are intermediate sanctions and to what types of exempt organizations do;they apply?;1758. CHAPTER;15?EXEMPT ENTITIES Question ES #9;Loyal, Inc., is a ?501(c)(3) organization that is not classified as a private;foundation. During the current year, it is subject to intermediate sanctions.;What other options does the IRS have in dealing with an exempt organization;engaging in prohibited transactions?;1759. CHAPTER;15?EXEMPT ENTITIES Question ES #10;What is a feeder organization? How is it taxed?;1760. CHAPTER;15?EXEMPT ENTITIES Question ES #11;Support the Child, Inc., a ? 501(c)(3) organization, provides clothing for the;children of disabled, low-income taxpayers. All of the clothes are received as;contributions from individuals or from a wholly-owned, for-profit subsidiary;(Sales, Inc.), which is in the retail clothing business (i.e., clothing that;has been in inventory for over 120 days is transferred to Support the Child for;distributions to qualified individuals). In addition to the clothing, Sales;distributes 75% of its net income each year to Support the Child.;a.;Is Support;the Child or Sales, Inc. a feeder organization?;b.;How would;your answer change if nearly all of the work of Support the Child was done by;volunteers?;1761. CHAPTER;15?EXEMPT ENTITIES Question ES #12;Is the taxation of a feeder organization influenced by the percentage of its;earnings that it remits to an exempt organization?;1762. CHAPTER;15?EXEMPT ENTITIES Question ES #13;What income and activities are not subject to the feeder organization rules?;1763. CHAPTER;15?EXEMPT ENTITIES Question ES #14;Define a private foundation.;Correct;Answer;The following;? 501(c)(3) organizations are not;private foundations.;a.;Churches, educational institutions, hospitals and;medical research organizations, charitable organizations receiving a major;portion of their support from the general public or the United States, a;state, or a political subdivision thereof that is operated for the benefit of;a college or university, and governmental units (favored activities;category).;b.;Organizations that are broadly supported by the;general public (excluding disqualified persons), by governmental units, or by;organizations described in (a) above.;c.;Entities organized and operated exclusively for;the benefit of organizations described in (a) or (b) [a supporting;organization].;d.;Entities organized and operated exclusively for testing;for public safety.;1764. CHAPTER;15?EXEMPT ENTITIES Question ES #15;How can an exempt organization, otherwise classified as a private foundation;avoid private foundation status?;1765. CHAPTER;15?EXEMPT ENTITIES Question ES #16;What is the purpose of the ?broadly supported? exception for an exempt;organization being classified as a private foundation?;1766. CHAPTER;15?EXEMPT ENTITIES Question ES #17;Discuss any negative tax consequences that result from an exempt organization;being classified as a private foundation.;1767. CHAPTER;15?EXEMPT ENTITIES Question ES #18;What are the excise taxes imposed on private foundations, and why are they;imposed?;1768. CHAPTER;15?EXEMPT ENTITIES Question ES #19;Identify the components of the tax model for unrelated business taxable income.;1769. CHAPTER;15?EXEMPT ENTITIES Question ES #20;What is the purpose of the unrelated business income tax?;1770. CHAPTER;15?EXEMPT ENTITIES Question ES #21;Is there a materiality exception associated with the unrelated business income;tax?;1771. CHAPTER;15?EXEMPT ENTITIES Question ES #22;Which requirements must be satisfied for an exempt organization to be;classified as an unrelated trade or business? Is being classified as an;unrelated trade or business good or bad?;1772. CHAPTER;15?EXEMPT ENTITIES Question ES #23;Define ?trade or business? for purposes of the unrelated business income tax;(UBIT).;Correct;Answer;Trade or;business, for purposes of the UBIT, is broadly defined. It includes any;activity conducted for the production of income through the sale of merchandise;or the performance of services. An activity need not generate a profit to be;treated as a trade or business. The activity may be part of a larger set of;activities conducted by the organization, some of which may be related to the;exempt purpose. Being included in a larger set does not cause the activity to;lose its identity as an unrelated trade or business.;1773. CHAPTER;15?EXEMPT ENTITIES Question ES #24;One of the requirements for an exempt organization being classified as an;unrelated trade or business is the ?not substantially related? requirement.;That is, the trade or business is not substantially related to the exempt;purpose of the organization. How can an exempt organization avoid satisfying;this requirement?;1774. CHAPTER;15?EXEMPT ENTITIES Question ES #25;Define a qualified corporate sponsorship payment.;1775. CHAPTER;15?EXEMPT ENTITIES Question ES #26;Under what circumstances are bingo games not;treated as an unrelated trade or business?;1776. CHAPTER;15?EXEMPT ENTITIES Question ES #27;If an exempt;organization distributes ?low-cost items? as an incidental part of its;solicitation for charitable contributions, the distribution is not considered;an unrelated trade or business.;a.;Define a;low-cost item in 2011?;b.;Provide;examples of low-cost items.;1777. CHAPTER;15?EXEMPT ENTITIES Question ES #28;A ? 501(c)(3) organization exchanges its membership lists with another exempt;organization. What are the Federal income tax consequences?;1778. CHAPTER;15?EXEMPT ENTITIES Question ES #29;Robin, Inc., an exempt organization, acquired a building for $400,000 which it;will lease to XYZ, Inc., for $40,000 annually. To finance the acquisition of;the building, Robin secures a mortgage on it of $250,000. Advise Robin as to;whether it has any unrelated debt-financed income or deductions.;1779. CHAPTER;15?EXEMPT ENTITIES Question ES #30;Define average acquisition indebtedness with respect to debt-financed property.;1780. CHAPTER;15?EXEMPT ENTITIES Question ES #31;What tax forms are used to apply for exempt status?;1781. CHAPTER;15?EXEMPT ENTITIES Question ES #32;If an exempt organization is required to file an annual information return, on;what form is it filed?;1782. CHAPTER;15?EXEMPT ENTITIES Question ES #33;Which exempt organizations can file a Form 990-N or Form 990-EZ?

 

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