25 May Question 1. Faith Church, a § 501(c)(3) organization, operates a bingo ga
Question
1. Faith Church, a § 501(c)(3) organization, operates a bingo game two times each week to raise money to support the
youth activities of the church. For the current year, net proceeds from the bingo game are $900,000.
a. Determine the tax consequences for Faith Church if the bingo game is conducted in a state where for-profit bingo games are illegal, and where the bingo game is legal for exempt entities.
b. Determine the tax consequences for Faith Church if the bingo game is conducted in a state and locality where bingo games are legal for both for-profit and exempt entities.
2. Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign. An executive, who recently completed an executive MBA degree program, recommends that personal address labels be included as an additional way to motivate the potential donor to contribute. The value of these labels is $9.95 per potential donor. What is the effect of the inclusion of the address labels on Watch’s unrelated business income?
3. Ice, Inc., a § 501(c)(3) organization, has been leasing a building to Soft, Inc., a taxable entity, for 15 years. The lease terminates in the current tax year. Ice’s adjusted basis for the building is $225,000. It sells the building to the Development Partnership, a taxable entity, for $440,000. Selling expenses are $26,400.
a. Calculate the effect of the sale on Ice’s UBTI.
b. Assume instead that Development Partnership is a tax-exempt entity. Calculate the effect of the sale on Ice’s UBTI.
4. Amber, Inc., an exempt organization, reports unrelated business taxable income of $300,000. Total charitable contributions are $35,000, of which $31,000 (associated with the unrelated trade or business) has been deducted in calculating net unrelated business income. Calculate Amber’s positive and negative adjustments in calculating unrelated business taxable income.
5. City, Inc., an exempt organization, has included among other amounts the following in calculating net unrelated business income of $500,000.
| Dividend income | $12,000 |
| Interest income | 6,000 |
| Royalty income | 15,000 |
| Rent income from equipment | 25,000 |
The only expenses incurred associated with these items are rental expenses (which includes depreciation of
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