25 May Question 1. Assist, Inc., a § 501(c)(3) organization, receives the following sources of suppo
Question
1. Assist, Inc., a § 501(c)(3) organization, receives the following sources of support during the tax year.
| General public for services rendered | $22,000 |
| Governmental unit A for services rendered | 30,000 |
| Governmental unit B for services rendered | 3,000 |
| Governmental unit C for services rendered | 8,000 |
| Gross investment income | 19,000 |
| Contributions from individual substantial contributors (disqualified persons) | 18,000 |
| Is Assist, Inc., classified as a private foundation? |
2. Spirit, Inc., a § 501(c)(3) organization, is classified as a private foundation. It has investment income of $175,000. Calculate Spirit’s tax on its investment income.
3. Orange, Inc., a private foundation, engages in a transaction with a disqualified person in the amount of $800,000. Calculate the tax on self-dealing. Assume that corrective action is taken so that the additional tax does not apply.
4. Well, Inc., a private foundation, makes a speculative investment of $400,000 that puts the foundation assets at risk. Calculate the tax on jeopardizing investments. Assume that corrective action is taken so that the additional tax does not apply.
5. Wonder, Inc., a § 501(c)(3) exempt organization, acquired all the stock of a forprofit corporation for $100,000. Wonder is a private foundation. The acquired corporation was not a related business. Calculate the tax on excess business holdings. Assume that corrective action is taken so that the additional tax does not apply.
6. Warmth, Inc., a private foundation, makes an expenditure of $800,000 that should not be made by a private foundation. Calculate the tax on taxable expenditures. Assume that corrective action is taken so that the additional tax does not apply.
7. First Americans, Inc., a § 501(c)(3) organization, operates a museum which depicts the lives of a tribe of Native Americans. It charges an admission fee, but also finances its operations through endowment income, contributions, and gift shop sales. The gift shop is operated by 50 volunteers and the museum is operated by 15 employees. Revenue by source is:
| Admission fees | $700,000 |
| Endowment income | 75,000 |
| Gift shop net income | 300,000 |
| Contributions | 100,000 |
a. Determine the amount of First Americans’ unrelated business income.
b. Determine the amount of First American’s unrelated business income tax (UBIT).
8. Radio, Inc., an exempt organization, trains disabled individuals to be radio announcers. Rather than hold a traditional graduation exercise, the graduates compete in a radio announcer contest. Such activities are held four times each year. An admission fee of $10 is charged to the general public to attend the contest. Eight hundred people attended the contest this year, and prizes of $2,000 were given to the top 3 graduates. Calculate the amount of Radio’s unrelated business income from this activity.
9. The Dispensary is a pharmacy that is part of a § 501(c)(3) hospital. Its primary mission is to dispense medicines for hospital patients. In addition, the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital. It does this for the dual purpose of convenience to the former patients (i.e., the closest pharmacy is 6 miles away), and to ensure that the former patients receive the medicines that have been prescribed for them.
The Dispensary carefully carries out the policy of the hospital board that no more than 25% of its gross revenues come from former-patient medicine sales. If necessary, in December of each year, sales to former patients are curtailed to assure compliance with this policy. Sales revenue from each of the two sources is as follows for the tax year.
Medicine dispensed to hospital patients $900,000
Medicine sales to former patients 100,000
Calculate the amount of The Dispensary’s unrelated business income.
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