R6 - Tax-Exempt Organizations

Question 1

Types of TE Orgs

Answer 1

1. Sec 501(c)(1)
2. Sec 501(c)(2)
3. Sec 501(c)(3)

Question 2

SEc 501(c)(1)

Answer 2

Ex: Credit Union

• Organized under Congress
• Does not need to make a written application to be TE
• Does not have an annual requirement to file

Question 3

SEc 501(c)(2)

Answer 3

Ex: HoldCo for exempt orgs

• It’s a holding company for a TE org.
• Collects money from the property held and returns net income to TE org.
• Must file Form 1024 to apply for TE status.

Question 4

SEc 501(c)(3) - THE IMPORTANT ONE!!!!!

Answer 4

Ex: Public charities/Private Foundations

- Must file Form 1023 to apply for TE status AND be approved by the IRS.

Question 5

Requirements for TE status

Answer 5

• No part of earnings may benefit a private SH or individual.
• A substantial part of the activities may not be nonexempt activities (propaganda, influence law)
• Org may not directly participate or intervene in political campaigns.

Question 6

Sec 509 Private Foundations - Exclusions

Answer 6

• Max 60% charitable deduction donees.
• Receives >1/3 of their annual income from the public and <1/3 from investment income and UBI.
• Supporting orgs.
• DPS testing orgs

Question 7

Sec 509 Private Foundations - Filing Requirements

Answer 7

• Form 990-PF (information return)

Question 8

Sec 509 Private Foundations - Terminations

Answer 8

• Involuntary Termination: When PF becomes a public charity.
• Voluntary Termination: By notifying IRS.

Question 9

UBI = Taxable

Answer 9

Ex. College bookstore/Cafeteria

• Derived from trade or business
• Regular
• Not related to TE purpose.

Question 10

UBI - Exclusions

Answer 10

• Bingo games/Games of Chance
• Activity conducted for the convenience of org members.
• Trade show.
• Exchange or rental of membership lists.
• Sale of items received as contributions (Goodwill).
• Sale of articles made by disabled persons (art with feet).
• When work is performed by unpaid volunteers.

Question 11

Taxation of UBI

Answer 11

• Form 990-T
• Exemption: $1,000
• Separate calc of each UBI

Question 12

Excluded types of income

Answer 12

• Dividend, interest
• Royalties
• Rents
• Income from research
• Gains and losses of dispositions of property (not for sale)

Question 13

Membership Organizations

Answer 13

• Social Clubs, HOAs.
• Deductions to the extent of TE activity.
• If makes a profit, it is taxable.

Question 14

Feeder Org

Answer 14

• Taxed on its entire income.

Question 15

Annual Filing Requirement

Answer 15

• Form 990, due by May 15.

- Form 990-EZ is gross receipts are>$200K and total assets are >$500K

Question 16

Exceptions to 990 - CHRIST

Answer 16

• Churches
• High schools - religious
• Religious orders
• Internal Support Orgs
• Societies - Missionary related
• TE orgs by gov

Question 17

990-EZ

Answer 17

• Orgs that have less than $50K gross receipts

Question 18

Penalties = 3 strikes or your out.

Answer 18

• When org doesn’t file return for 3 consecutive years, TE statues is automatically revoked as of the 3rd year due date.

Question 19

Retaining TE Status

Answer 19

Avoid:

• Operate for the benefit of private interests.
• Devote activities to law influence.
• Participate in political campaign.
• Conduct illegal activities.

Question 20

Resuming TE Status after Revocation

Answer 20

• Must file an application
• May choose that reinstatement be retroactive to the effective date of revocation.
• Within 15 mo must complete one or more of:
  a. File all required docs (Form 1023/1024)
  b. File annual returns.
  c. Submit a statement citing reasonable cause.