R3 Exempt Organization

Question 0

What are the general requirements for a 501(c)(3) corporation to maintain its tax exempt status?

Answer 0

General requirements are:

• No part of the net earnings may insure to the benefit of any private foundation or individual
• No substantial part of the activities may be non exempt activities (propaganda or influencing legislation)
• The organization may not directly participate or intervene in any political campaign

Note: the organization must file the required annual information forms, if the organization fails to file on 3 consecutive years the tax exempt status may be revoked (due may 15)

Question 1

Other than 501(c)(1) corporation, which is created through an act of congress, what are the general requirements for a corporation to obtain tax exempt status?

Answer 1

General requirements are:

• Make a written application for exempt status
• Be approved by the IRS
• Become incorporated under the standard procedures
• Issue capital stock
• Include in the articles of organization the fact that the articles limit the purpose of the entity to the charitable exempt purpose

Question 2

When does a private foundation terminates involuntarily?

Answer 2

When either of the following occurs:

• It becomes a public charity
• It commits repeated violations or awful full and flagrant violation if bay of the private foundation provision

Question 3

What are the categories of private foundations that are excludes from the provisions of 509 Private Foundations?

Answer 3

The following are excluded from private foundations as they are deemed to be public:

• Maximum of 50% type charitable deduction donees
• Broadly publicly supported organizations receiving more than 1/3 of their annual support from members of the public and less than 1/3 from investment income and unrelated income
• Supporting organizations
• Public safety testing organizations

Question 4

What is the definition of UBI?

Answer 4

Unrelated business income is gross income from unrelated trade or business regularly carried on minus business deductions connected there with, UBI is:

• Derived from an activity that constitutes a trade or business
• Regularly carried on
• Not substantially related to the organization’s tax exempt purposes

Question 5

How is UBI taxed for an exempt organization?

Answer 5

The organization may become subject to regular corporate income tax on its unrelated business income:

• The organization is allowed a $1,000 specific deduction from UBI, so only UBI in excess of $1,000 is subject to tax
• The income excluded from tax are: royalties, dividends, interest, and annuities except if derived from controlled organization, gain or loss from sale of items not in the ordinary course of business, income from labor unions, bingo games, income from research of a college or hospital, income from exchange of membership lists etc.

Question 6

What are some items if income that are excluded from tax for exempt organizations?

Answer 6

Rents from real property and rents from personal property leased with real (subject to limitation) other than income from debt financed property

Gains and losses from sale/exchange of property not held primarily for sale to customers

Income from research of a college or hospital

Income from labor unions used to establish exclusive-use facilities

Activities limited to exempt organizations by state law (bingo)

Income from the exchange or rental of membership list

Question 7

What are three types of exempt organizations that do not have an annual filing requirement of an information return with the IRS?

Answer 7

Organizations that normally have less than $50,000 in annual 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 

Have less than $5,000 in annual gross receipts (educational organizations, religious organization, public type charities, fraternal organizations, and those organized to prevent cruelty to children or animals)