CHAPTER 23 SOLUTIONS
END OF CHAPTER QUESTIONS COVERED IN LECTURE – NOT
7, 8, 9, 10, 11, 14, 15, 16, 17, 25, 26, 27, AND 29.
7. An exempt organization generally is exempt from Federal income taxes. In addition, an
exempt organization may be exempt from state income taxes, state franchise taxes, sales
taxes, or property taxes. They may also receive discounts on postage rates. However,
exempt organizations may be subject to Federal income taxes in the following situations.
Engages in prohibited transactions.
Is a feeder organization.
Is a private foundation that is partially subject to income tax.
Has income tax levied on unrelated business taxable income.
Donors of property to an exempt organization may qualify for a charitable contribution
deduction. However, not all exempt organizations are qualified charitable contribution
recipients (e.g., NFL, PGA Tour, Underwriters Laboratories).
p. 23-6, Concept Summary 23-2, and Exhibit 23-1
a. A § 501(c)(3) hospital is prohibited from participating in political campaigns. Doing
so can result in the forfeiture of exempt status. However, the hospital could make a
§ 501(h) election which will enable it to lobby on a limited basis.
b. A church is also prohibited from participating in political campaigns. Doing so can
also result in the forfeiture of exempt status. A church is not eligible for a § 501(h)
p. 23-7 and Footnote 14
9. Organizations exempt under § 501(c)(3) generally are limited from attempting to influence
legislation (lobbying activities) or from participating in political campaigns. A violation can
result in the forfeiture of exempt status. However, certain § 501(c)(3) organizations can elect to
have their lobbying activities measured by an ‘‘expenditure’’ test. Other § 501(c)(3)
organizations who cannot make a § 501(h) election lose their tax-exempt status if a substantial
part of the organization’s activities consist of lobbying [‘‘no substantial part’’ test under § 501(c)
Amber apparently is eligible for and has elected to engage in lobbying activities on a limited
basis or, if not eligible for the election, no substantial part of Amber’s activities consists of
lobbying. Mauve either has exceeded the limitations on lobbying expenditures under the