Question 1. Hope, Inc., an exempt organization, owns a factory buil

1. Hope, Inc., an exempt organization, owns a factory building that it leases to a taxable corporation for $100,000 per year. Related expenses for Hope are $30,000. Hope’s average acquisition indebtedness on the building is $400,000 and the average adjusted basis is $600,000. Calculate Hope’s unrelated debt­financed income and expenses. Then indicate the effect of these items on unrelated business taxable income.

2. Why are some organizations exempt from Federal income tax?

3. Are organizations that qualify for exempt organization status completely exempt from Federal income taxation?

4. Under what part of § 501(c) are most organizations exempt from Federal income taxation?

5. What are the common characteristics of organizations that receive exempt status?

6. Discuss benefits for which an exempt organization may be eligible, other than exemption from Federal income tax.

7. Are some exempt organizations eligible to be recipients of contributions for which the donor does not qualify for a charitable contribution deduction?

8. Discuss the relationship between the qualification requirements for exempt status and the maintenance requirements.

9. Describe how an exempt organization can be eligible to make lobbying expenditures without losing its tax exemption.

10. An eligible § 501(c)(3) organization has made the § 501(h) election to participate in lobbying on a limited basis. If the ceiling on lobbying established in § 501(h) (lobbying nontaxable amount) is exceeded, what are the potential tax consequences to the exempt organization?

11. What are intermediate sanctions and to what types of exempt organizations do they apply?

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12. Loyal, Inc., is a §501(c)(3) organization that is not classified as a private foundation. During the current year, it is subject to intermediate sanctions. What other options does the IRS have in dealing with an exempt organization engaging in prohibited transactions?

13. Francis is the CEO of Give, Inc., a § 501(c)(3) organization. Francis informs you that the will of a major donor transfers 100% of the stock of Friendly Hot Dogs to Give, Inc. Since Friendly is a profitable entity, Francis would like for Give to continue to own and operate Friendly Hot Dogs. You inform Francis that Friendly would be a feeder organization. Describe for the CEO what a feeder organization is and how it is taxed.

14. Support the Pets, Inc., a § 501(c)(3) organization, provides pet food to humane societies. All of the pet food is received as contributions from individuals or from a wholly-owned, for-profit subsidiary (Sales, Inc.), which is in the retail pet food business (i.e., pet food that has been in inventory for over 120 days is transferred to Support the Pets for distributions to humane societies). In addition to the pet food, Sales distributes 75% of its net income each year to Support the Pets.

a. Is Support the Pets or Sales, Inc., a feeder organization?

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