6.2 - Tax Exempt Organizations

Question 1

What are the 4 types of tax exempt organizations?

Answer 1

Section 501(c)(1) organization
Section 501(c)(2) organization
Section 501(c)(3) organization
Section 509 private foundation

Question 2

This type of tax exempt organization is organized under an act of Congress as a U.S. instrumentally and does not require an application; however, it must be enlarged exempt under the IRC. What is an example?

Answer 2

Section 501(c)(1) organization
Federal credit union is an example

Question 3

This type of tax exempt organization is organized for exclusive purposes of holding title to property, collecting income rom that property, and turning over the net income to an exempt organization. What is an example?

Answer 3

Section 501(c)(2) organization
Holding corporations for exempt organizations is an example

Question 4

This type of tax exempt organization is the most common type of exempt organization and includes public charities and private foundations. The organization must apply for tax-exempt status and be approved by the IRS.

Answer 4

Section 501(c)(3) organization

Question 5

What are the requirements of a section 501(c)(3) organization that if not met result in the loss of tax-exempt status?

Answer 5

No part of the organizations net earnings may benefit any private shareholder
A substantial part of the activities of the organization may not be non exempt activities (propaganda or influence legislation)
May not directly participate or intervene in any political campaign

Question 6

This type of tax exempt organization includes all section 501(c)(3) organizations. A foreign corporation may qualify as this as well.

Answer 6

Section 509 private foundation

Question 7

The following 4 categories are not private foundations:

Answer 7

1. Maximum 60% type charitable deduction donees
2. Broadly publicly supported organizations receiving more than 1/3 of their annual support from members of the public
3. Supporting organizations
4. Public safety testing organizations

Question 8

Unrelated business income (UBI) of tax-exempt organization is income that is taxable and:

Answer 8

Derived from an activity that constitutes a trade or business
Regularly carried on
And not substantially related to the organizations tax-exempt purpose

Question 9

The following activities are excluded from the definition of unrelated trade or business and not taxable:

Answer 9

Bingo games (games of chance)
Activity conducted for the convenience of an organization’s members
Convention or trade show activity
Exchange or rental membership lists
Sale of merchandise received as gift or contributions (thrift shop)
Sale of articles made by disabled persons as part of their rehabilitation
Activity where substantially all the work is performed by unpaid volunteers

Question 10

Excluded types of income that are not taxed include:

Answer 10

Dividends, interest, and annuities
Royalties
Rents from real property (unless personal services also provided)
Income from research
Gains and losses from disposition of property not held for sale to customers

Question 11

What are membership organizations?

Answer 11

Social clubs and homeowners associations

Question 12

Are membership organizations taxed?

Answer 12

Yes

Question 13

Membership organizations are typically taxed at gross income minus deductions for exempt function income. What is includable in functional income?

Answer 13

Dues, fees, and charges for providing facilities and services for members, dependents, and guests