CHAPTER23REVIEWQUESTIONS - Essay - ESSAY 1. Why are some...

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ESSAY 1. Why are some organizations exempt from Federal income tax? ANS: The Code’s treatment of exempt organizations is based on a variety of objectives. While the major objective is to raise revenue, social, economic, and political objectives also are present. Social objectives are served by the provision of exempt status for organizations who serve the general welfare, and by so doing, may reduce the financial burden required of the Federal government. PTS: 1 REF: p. 23-3 2. Under what part of § 501(c) are most organizations exempt from Federal income taxation? ANS: Most organizations that are exempt from Federal income tax qualify for exempt status under § 501(c)(3). Among the types of organizations exempt under § 501(c)(3) are religious, charitable, educational, scientific, and literary organizations. Examples include the Boy Scouts of America, Red Cross, Salvation Army, Episcopal Church, United Fund, and the University of Richmond. PTS: 1 REF: p. 23-4 | Exhibit 23-1 3. What are the common characteristics of organizations that receive exempt status? ANS: Many organizations that qualify for exempt status share the following characteristics. The organization serves some type of common goal. The organization is not a for-profit entity. Net earnings of the organization do not benefit the members of the organization. The organization does not exert political influence. PTS: 1 REF: p. 23-5 23-1
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23-2 2008 Comprehensive Volume/Test Bank 4. Discuss benefits for which an exempt organization may be eligible, other than exemption from Federal income tax. ANS: In addition to being exempt from Federal income tax, an exempt organization may be eligible for the following benefits. Exemption from state income tax, state franchise tax, sales tax, and property tax. Receive discounts on postage rates. Donors of property to the exempt organization may qualify for charitable contribution deductions on their Federal or state income tax returns. PTS: 1 REF: p. 23-7 | Concept Summary 23-2 5. Describe how an exempt organization can be eligible to lobby. ANS: Certain exempt organizations are permitted to lobby on a limited basis by making the § 501(h) election. Such lobbying expenses are subject to a ceiling. Exceeding the ceiling can lead to the forfeiture of exempt status. Churches, their integrated auxiliaries, and private foundations are not eligible to make the § 501(h) election. Instead, no substantial part of the organization’s activities can include lobbying. PTS: 1 REF: p. 23-7 6. What are intermediate sanctions and to what types of exempt organizations do they apply? ANS:
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This note was uploaded on 04/07/2011 for the course ACCT 640 taught by Professor N/a during the Spring '11 term at Davenport.

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CHAPTER23REVIEWQUESTIONS - Essay - ESSAY 1. Why are some...

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