Exempt Organizations

Question 1

What are the types of Exempt Organizations (4)

R3-57

Answer 1

1–Section 501 (c) (1) - Act of Congress
2–Section 501 (c) (2) - Application Form 1024
3–Section 501 (c) (3) Corporation
4–Section 509 Private Foundations

Question 2

Section 501 (c) (3) Corporation

What are the requirements?

R3-57

Answer 2

• -no part of net earnings may inure to the benefit of any private SH or individual
• -no substantial part of activities may be nonexempt activities (cannot influence legislation)
• -org may not participate or intervene in political campaign

Question 3

Section 509 Private Foundations

Which foundations are included and excluded?

R3-57

Answer 3

• -includes all Section 501 (c) (3) corporations
• -excludes public foundations

Public Foundations:

• -maximum (50%-type) charitable deduction donees
• -publicly-suported org w/ >1/3 of annual support from members and

Question 4

Exempt Organizations

Which Forms are required?

R3-58

Answer 4

An annual information return (Form 990-PF).

• -it discloses substantial contributors and amounts of contributions received
• -due May 15

Question 5

How is Exempt status Terminated?

R3-58

Answer 5

Involuntary:
–private foundations terminate when they become public charities

Voluntary:

• -notify IRS of termination
• -subject to tax of lower of the value of its aggregate tax benefits or net assets

Question 6

What is Unrelated Business Income (UBI)?

R3-58

Answer 6

UBI is:
–derived from activity that constitutes a trade or business;
–regularly carried on;
and
–not substantially related to the org tax-exempt purpose

*UBI does not include activities where work is performed by unpaid workers (volunteers)

Question 7

How much of UBI is taxed?

R3-59

Answer 7

• -File Form 990-T
• -allowed a $1,000 deduction from UBI
• -taxed on UBI in excess of $1,000

Question 8

What items of UBI are excluded in income?

R3-59

Answer 8

• -royalties, div, interest, annuities
• -rents from real property
• -G(L) on sale or exchange of property
• -income from research of a college or hospital
• -income of labor unions used to establish retirement homes, hospitals
• -activities limited to exempt orgs by state law (bingo games)
• -value of securities loaned to broker
• -income from exchange or rental of membership lists of tax-exempt charitable orgs

Question 9

Annual Return Requirement

R3-60

Answer 9

Form 990 stating gross income, receipts, contribution disbursements, etc. is required and open to public inspection

Question 10

Annual Return Requirement

Who is Exempt? (3)

R3-60

Answer 10

1–Religious or Internally Supported orgs
2–Certain orgs that normally have >$5,000 in gross receipts
3–orgs that normally have >$50,000 in gross receipts

Question 11

Which exempt org is not required to file?

“CHRIST” mnemonic

R3-60

Answer 11

$50,000 or less in gross receipts
C--Churches
H--High Schools - Religious
R--Religious Orders
I--Internal Support Auxiliaries
S--Societies - Missionary Related
T--Tax Exempt - Organized by Congress