R6-M2 Tax Exempt Organization

Question 1

what are types of tax-exempt organizations?

Answer 1

• section 501(c)(1) org: is organized under an act of congress and does not required an application but must be declared exempt under the IR code or the org legislation
• section 501(c)(2) org: is organized for the exclusive purpose of holding title to property, collect income from the property, and turn income over to an exempt org

*- section 501(c)(3) org: most important type
+ they are public charities and private foundations such as foundations, funds, community chests, and corporations. NOT include partnerships
+ must apply for tax-exempt status and be approved by the IRS to be listed as an exempt org
+ requirements: earnings not benefit shareholders, majority of activities may not be nonexempt activities, may not directly participate or intervene in any political campaign

Question 2

what are 4 category of public organizations (NOT PRIVATE)?

Answer 2

• max 60% type charitable deduction donees
• publicly supported organizations receiving more than 1/3 annual support from members of public and less than 1/3 from investment income and unrelated business income
• supporting organizations
• public safety testing organizations

Question 3

what are unrelated business income (UBI and taxable)?

Answer 3

• definition: income from business enterprise that is NOT related to tax-exempt purpose and subject to regular corporate income tax. ex: conducting business retreats
• characteristics:
  + constitutes a trade or business
  + regularly carried on
  + not substantially related to the org’s tax-exempt purpose
• activities that are NOT UBI:
• bingo games or games of chance
• conduct for the convenience of an organization’s members, students, patients, or employees
• convention or trade show activity
• exchange or rental of membership lists
• sale received as gifts (thrift shop)
• sales of articles made by disabled persons
• activity performed by unpaid volunteers

*income that are NOT UBI:
- dividends, interest, annuities, and other investment income
- royalties
- rents from real property (UNLESS personal services also provided)
- income from research by a college, university, or hospital
- gains/losses from disposition of property not held primarily for sale to customers in the ordinary course of business