Taxation & Legal Compliance Flashcards

Which type of income earned by a tax-exempt organization is subject to Unrelated Business Income Tax (UBIT)?

Answer: Income from a trade or business regularly carried on that is not substantially related to the exempt purpose

UBIT applies to income from a trade or business that is regularly carried on and not substantially related to the organization's exempt purpose, regardless of how the proceeds are used.

Under IRC 170(e)(1), which type of contribution requires a donor to reduce the deduction by the amount of ordinary income that would have been recognized if the property were sold?

Answer: Short-term capital gain property and ordinary income property

For short-term capital gain property or ordinary income property such as inventory or property held one year or less, the deduction equals fair market value minus the gain that would have been ordinary income, effectively limiting the deduction to cost basis.

A private foundation that fails to distribute at least 5% of its non-charitable use assets annually is subject to which excise tax under IRC 4942?

Answer: 30% of undistributed income

Under IRC 4942, private foundations that fail to meet the 5% minimum distribution requirement are subject to a 30% initial excise tax on undistributed income.

Which of the following correctly describes the tax treatment of a quid pro quo contribution to a charity?

Answer: Only the amount exceeding the fair market value of goods or services received is deductible

In a quid pro quo contribution, the deductible amount equals the amount paid minus the fair market value of any goods or services received in return. For payments over $75, the charity must provide written disclosure.

For estate planning purposes, what is the primary tax advantage of making a charitable bequest from a traditional IRA rather than from taxable estate assets?

Answer: The IRA bequest avoids income in respect of a decedent, eliminating both income tax and estate tax on those funds

IRA assets left to charity escape both the income tax that heirs would owe as income in respect of a decedent and estate tax, making them the most tax-efficient bequest vehicle.

A nonprofit that engages in private benefit transactions for the benefit of a non-charitable class risks which IRS consequence?

Answer: Revocation of tax-exempt status under IRC 501(c)(3)

Under IRC 501(c)(3), an organization must operate exclusively for exempt purposes; serving private interests beyond incidental benefit is grounds for revocation of tax-exempt status.