Unit 17: Nonprofit Organizations

Question 1

In general, there are two types of exempt entities:

Answer 1

1. 501(c) charities
2. Other 501(c) entities (this group includes non-charities, including social clubs, labor unions, and nonprofit political organizations)

Question 2

Requirements: Organization

Answer 2

It must be organized as a corporation, a trust, or an unincorporated association, and its purpose must be limited to a qualified exempt purpose, as described in section 501(c)(3). A nonprofit entity may not be organized as a partnership or sole proprietorship

Question 3

Requirements: Exempt Purpose

Answer 3

It must have one or more exempt purposes as listed under section 501(c)(3): Charitable, educational, religious, scientific, literary, fostering national or international sports competition, preventing cruelty to children or animals, or testing for public safety

Question 4

A substantial portion of its activities must be related to its exempt purpose(s). Further, a 501(c)(3) organization must:

Answer 4

• Refrain from participating in political campaigns of candidates. 501(c)(3) organizations must also avoid any issue that may be construed as political campaign intervention
• Restrict is lobbying activities to an “insubstantial” part of its total activities
• Grants, donations, and activities may not assist any private election campaign or endorse any political candidates for public office
• Ensure that its earnings do not benefit any private shareholder or individual
• Not operate for the benefit of private interests, such as those of its founder, the founder’s family, or its shareholders
• Not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose.

Question 5

Before applying for tax-exempt status, an organization must be created by:

Answer 5

Preparing and organizing document

Question 6

1023

Answer 6

“Application for Recognition of Exemption”

Used to request exempt status of 501(c)(3) status

Question 7

1023: who is not required to file?

Answer 7

Any organization with annual gross receipts of no more than $5,000 is not required to file a 1023 but must do so within 90 days of the tax year in which it exceeds this threshold

Question 8

Applications for recognition of exemption on Form 1023 must be submitted:

Answer 8

Electronically online at www.pay.gov

Question 9

1023 user fee

Answer 9

$600

Question 10

1023-EZ

Answer 10

A simpler application form that is designed for small tax-exempt organizations. The application is only three pages long, compared to 26 pages for the traditional Form 1023

Question 11

1023-EZ fee

Answer 11

$275

Question 12

1023-EZ: To qualify, an organization must

Answer 12

• Gross receipts of $50,000 or less in the three prior years, and
• Assets(based on FMV) of $250,000 or less

Question 13

A 501(c)(3) must generally request an exemption from the IRS within:

Answer 13

27 months after the end of the month in which it was formed to obtain exempt status as of the date of its formation.

Question 14

While an organization’s application is pending approval, the organization may operate as if:

Answer 14

it we tax-exempt

Question 15

Who is not required to request a formal exemption?

Answer 15

Churches and similar religious organizations, regardless of their size or the amount of revenue or donations that the church receives. Chruchs are classified as public charities by default.

Question 16

1024

Answer 16

Used by 501(a) organziaitons

examples
- fraternal benefit societies
- Business leagues
- Chambers of commerce
- Farmers cooperatives

Question 17

1024-A

Answer 17

Used by organizations exempt under section 501(c)(4)

Examples:
- Social welfare organziaitons
- Volunteer fire departments
- Community service clubs such as Rotary Clubs and Lyon’s club

Question 18

8976

Answer 18

“Notice of Intent to Operate Under Section 501(c)(4)”

Must be filed within 60 days of the organization’s formation

Question 19

501(c)(1)

Answer 19

These are exempt corporations that are organized under an Act of Congress, including Federal Credit Unions and National Farm Loan Associations

Question 20

501(c)(5)

Answer 20

Includes labor unions, county fairs, agricultural cooperatives, and horticultural organizations

Question 21

501(c)(6)

Answer 21

Includes business leagues, professional sporting leagues, and boards of trade

Question 22

501(c)(7)

Answer 22

Includes social and recreation clubs, college fraternities and sororities, athletics clubs, yacht clubs, and hobby clubs

Question 23

501(c)(8) & 501(c)(10)

Answer 23

Includes fraternal beneficiary societies and associations operating under the lodge system. 501(c)(8) organizations provide insurance benefits to the society’s members, while 501(c)(10) organizations provide charitable benefits, Examples include the Knights of Columbus, Freemasons, and the Shriners

Question 24

501(c)(9)

Answer 24

These are voluntary employee beneficiary associations (VEBA) that are organized to pay life, sick, accident, or similar benefits to members or their dependents

Question 25

501(c)(12)

Answer 25

These are benevolent life insurance associations, exempt utility co-ops, and telephone and electric cooperatives

Question 26

501(c)(13)

Answer 26

These are nonprofit cemetery companies and crematoria. Individual contributions to 501(c)(13) entities are tax-deductible but subject to a 30% of AGI limit for individuals

Question 27

501(c)(14)

Answer 27

These are state-chartered credit unions and other mutual financial organizations

Question 28

501(c)(19)

Answer 28

These are veterans organizations. To qualify for this exempt status, the group must originate in the U.S. and at least 75% of its membership must be current or prior members of the armed forces. Contributions to a 501(c)(19) are tax-deductible by the donor, but subject to a 30% of AGI limit for individuals

Question 29

All private foundations must file Form:

Answer 29

990-PF “return of Private Foundation”, every year, regardless of their income.

Question 30

Only the following organizations are not required to file Form 990:

Answer 30

• Churches and their affiliated organizations
• Government agencies, as well as Section 501(c)(1) entities
• Certain political organizations

Question 31

Tax-exempt organizations with gross receipts of $50,000 or less may file

Answer 31

Form 990-N, “Electronic Notice for Tax-Exempt Organization Not Required to File Form 990”.

This form is also called an “e-postcard” because it is filed electronically and is short.

Question 32

If an organization has gross receipts of less than $200,000 and total assets at the end of the year of less than $500,000, it can file a form

Answer 32

990-EZ

Question 33

When are information returns due?

Answer 33

By the 15th day of the 5th month after their tax year ends.

Question 34

8868

Answer 34

Used to request a 6-month filing extension

Question 35

990 late filing penalty

Answer 35

$20/day, not to exceed the lesser of:
$11,000
or
5% of the gross receipts of the organization of the year

Question 36

990 late filing penalty: who has to pay $110/day?

Answer 36

Organizations with annual gross receipts exceeding $1,129,000 and a penalty has a maximum of $56,000

Question 37

Failure to file an annual information return for three years in a row will result in:

Answer 37

The automatic revocation of exempt status.

Question 38

An organization that has lost its tax-exempt status through automatic revocation may be required to file one of the following federal income tax returns and pay any applicable income taxes

Answer 38

• Form 1120, U.S. Corporation Income Tax Return, or
• Form 1041, U.S. Income Tax Return for Estates and Trusts

Question 39

Tax-exempt organizations that are required to file electronically, but do not, are deemed to have:

Answer 39

failed to file their return. This is true even if a paper return is submitted unless the organization files by paper to report a name change

Question 40

Exempt organizations: excise tax on executive compensation

Answer 40

21% of executive compensation over $1m

Question 41

4720

Answer 41

Used to report excise tax and is due on the 15th day of the 5th month after the end of the employer’s taxable year

Question 42

For most organizations, an activity is considered an unrelated business activity and subject to UBIT if:

Answer 42

• It is a trade or business
• It is regularly carried on
• It is not substantially related to furthering the exempt purpose(s) of the organization

Question 43

An exempt organization that has more than $1,000 or more of gross income from UB must file:

Answer 43

Form 990-T