CHAPTER23REVIEWQUESTIONS - ch14

CHAPTER23REVIEWQUESTIONS - ch14 - CHAPTER 23 EXEMPT...

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CHAPTER 23 EXEMPT ENTITIES TRUE/FALSE 1. The only purpose of the Federal income tax law is to raise revenue. ANS: F The major purpose of the Federal income tax law is to raise revenue. Among the other purposes are social considerations and economic objectives. PTS: 1 REF: p. 23-2 | p. 23-3 2. One reason for granting an exemption from Federal income tax to certain organizations is the belief that such organizations can perform certain government-like functions, and thereby reduce the financial burden that would otherwise fall on the Federal government. ANS: T REF: p. 23-3 3. Qualified state tuition programs are exempt from Federal income tax under § 501(c)(3). ANS: F Qualified state tuition programs are exempt from Federal income tax under § 529. PTS: 1 REF: Exhibit 23-1 4. To satisfy the “not-for-profit” requirement for exempt status, the entity may not be engaged in a trade or business. ANS: F To satisfy the “not-for-profit” requirement for exempt status, the organization must not be organized or operated for the purpose of making a profit. For example, the operation of a museum can be considered as a trade or business. But this does not cause the otherwise exempt museum to be ineligible for exempt status. PTS: 1 REF: p. 23-5 5. A general requirement for exempt status is that the net earnings of the organization not be used for the benefit of the members of the organization. ANS: T The net earnings of an exempt organization must not benefit the members of the organization. PTS: 1 REF: p. 23-5 23-1
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23-2 2008 Comprehensive Volume/Test Bank 6. General requirements for exempt status include the organization serving the common good and the organization being a not-for-profit entity. ANS: T REF: p. 23-5 7. While engaging in a prohibited transaction can result in an exempt organization being subject to tax, it will not result in an exempt organization losing its exempt status. ANS: F Engaging in a prohibited transaction can result in an exempt organization being subject to tax and to losing its exempt status. PTS: 1 REF: p. 23-7 8. The League of Women Voters is a § 501(c)(3) organization. ANS: F The League of Women Voters is a § 501(c)(4) organization (e.g., a civic league). PTS: 1 REF: Exhibit 23-1 9. An exempt educational organization is permitted to take lobbying expenditures if they relate to education and do not exceed $25,000. ANS: F There is no statutory provision permitting educational organizations to make lobbying expenditures as specified. PTS: 1 REF: p. 23-7 to 23-9 10. Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities in the same manner as taxable organizations. ANS: F Certain § 501(c)(3) exempt organizations which elect under § 501(h) are permitted to engage in lobbying activities on a limited basis. PTS:
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CHAPTER23REVIEWQUESTIONS - ch14 - CHAPTER 23 EXEMPT...

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