Practice Test Geeks(CAP) Certified Philanthropic Advisor Practice Test
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Regulatory Compliance & Law Flashcards

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  1. Which IRS revenue ruling established that a private foundation's investment in a program-related investment (PRI) does not jeopardize its exempt status?

    Answer: Rev. Rul. 71-447

    Rev. Rul. 71-447 confirmed that program-related investments furthering charitable purposes do not constitute jeopardizing investments under IRC Section 4944.

  2. A private foundation wants to pay reasonable compensation to a disqualified person for personal services. Which exception to the self-dealing rules applies?

    Answer: The personal services exception under IRC Section 4941(d)(2)(E)

    IRC Section 4941(d)(2)(E) allows private foundations to pay reasonable compensation to disqualified persons for personal services that are necessary to carry out the foundation's exempt purpose.

  3. Under state law, which legal doctrine requires charitable trustees to diversify investments and avoid speculative risks unless special circumstances apply?

    Answer: The Uniform Prudent Investor Act (UPIA)

    The Uniform Prudent Investor Act requires trustees to diversify investments and adopt a portfolio approach, considering risk and return in the context of the entire trust portfolio.

  4. A donor contributes artwork valued at $50,000 to a museum. The museum intends to sell the artwork immediately rather than use it in its exempt function. What is the donor's allowable deduction?

    Answer: Cost basis only

    When a charity's use of donated property is 'unrelated use' (i.e., selling rather than displaying the art), the donor's deduction is limited to cost basis, not fair market value.

  5. Under the Uniform Trust Code (UTC), what is the state attorney general's primary role regarding charitable trusts?

    Answer: Enforcing charitable trusts and representing the public interest in charitable assets

    State attorneys general have primary authority to enforce charitable trusts and protect the public interest, including investigating misuse of charitable assets.

  6. A 501(c)(3) public charity engages in substantial lobbying activities. What is the primary consequence under the Internal Revenue Code?

    Answer: The charity may lose its tax-exempt status

    Under IRC Section 501(h) and general exemption rules, a public charity that engages in substantial lobbying risks losing its 501(c)(3) tax-exempt status.

  7. Which of the following must a donor-advised fund (DAF) sponsoring organization do before making a grant to a foreign charity?

    Answer: Exercise expenditure responsibility or conduct an equivalency determination

    DAF sponsors granting to foreign organizations must either exercise expenditure responsibility or conduct an equivalency determination confirming the foreign charity meets U.S. public charity standards.