Charitable Organizations Flashcards
7 cards from real IRS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Charitable Organizations flashcards as text
What is the minimum payout requirement for a private foundation each year to avoid the excise tax on failure to distribute income?
Answer: 5% of the fair market value of net investment assets
Private foundations must distribute at least 5% of the fair market value of their net investment assets annually as qualifying distributions.
Which of the following is considered a self-dealing transaction between a private foundation and a disqualified person?
Answer: Lending money from the foundation to a board member at below-market interest
Self-dealing includes any loan between a private foundation and a disqualified person, even if at below-market rates, with limited exceptions.
What excise tax rate applies to a private foundation's net investment income?
Answer: 1.39%
Private foundations pay a flat 1.39% excise tax on net investment income under IRC Section 4940, as reduced by the Tax Cuts and Jobs Act.
A 501(c)(3) organization spends $150,000 on lobbying activities in a year when its exempt purpose expenditures total $1,000,000. Has it violated the substantial part test?
Answer: Likely yes, because 15% is generally considered substantial
Under the substantial part test, lobbying exceeding roughly 5–15% of total activities is generally considered substantial, which could jeopardize tax-exempt status.
Under the 501(h) election for lobbying expenditures, what is the maximum direct lobbying expenditure limit for an organization with $1,500,000 in exempt purpose expenditures?
Answer: $225,000
Under 501(h), the lobbying ceiling is 20% of exempt purpose expenditures up to $1M, plus 15% of amounts over $1M; for $1.5M: $200,000 + $75,000 = $225,000 (capped at $1M total).
Which of the following activities would constitute 'political campaign activity' prohibited for 501(c)(3) organizations?
Answer: Publishing a candidate voter guide that expresses a preference for one candidate
Publishing materials that express a preference for or against a candidate for public office constitutes prohibited political campaign activity under IRC Section 501(c)(3).
A charitable organization receives a bequest of $2,000,000 under a will. What written acknowledgment requirement applies to this gift?
Answer: No written acknowledgment is required because the gift was made at death
Charitable bequests transferred at death do not require the recipient organization to provide a contemporaneous written acknowledgment, as the deduction is taken on the estate tax return.