Chapter 14

3.Information that is skewed toward a particular belief with little basis in fact.

Propaganda

The not-for-profit organization applying for tax-exempt status determines the appropriate subsection under IRC Sec. 501 for which it wants to be considered and the Internal Revenue Service then approves or denies the application.

True

4.Gross income from a trade or business regularly carried on by a tax-exempt organization.

Unrelated business income

The tool the IRS most likely will use when key officers in a tax-exempt entity receive excess economic benefits from transactions with the not-for-profit organization is: Fines and forfeits. Revocation of the organization's tax-exempt status. Intermediate sanctions. Public display of offenders on the IRS's Web site.

intermediate sanctions.

3.Does the organization rely more on debt or net assets to finance its operations?

Capital structure

2.A direct request for credit or financial assistance that will be used for the 501(c)(3)'s mission.

Charitable solicitation

Not-for-profit organizations risk loss of their tax-exempt status if they engage in any political activity.

False

A good measure of whether a not-for-profit organization is "liquid" and can meet its short-term obligations is: Percentage of program expenses to total expenses. Total revenues divided by total expenses. Current assets divided by current liabilities. Percentage of unrestricted net assets to operating expenses.

Current assets divided by current liabilities.

Approval from the IRS of 501(c)(3) status exempts an organization from which of the following? All taxes. Federal income taxes. Federal and state income taxes. Income taxes and sales taxes.

Federal income taxes.

A good measure of whether a not-for-profit organization is efficient in its fund-raising efforts is: Fund-raising expenses as a percentage of public support. The ratio of program expenses to number of clients served. Total revenues divided by total expenses. Percentage of program expenses to total expenses.

Fund-raising expenses as a percentage of public support

2.What percentage of contributions remains after deducting the cost of raising the contributions?

Fund-raising ratio

5.Are revenues sufficient to cover expenses?

Going concern

1.Are earnings on investments on target?

Investment performance

5.Contacting elected officials to encourage specific legislative action.

Lobbying

Public disclosure rules require that a tax-exempt not-for-profit organization: Make available a copy of its Form 990 to the public for a period of up to three years. Post a copy of its articles of incorporation and by-laws on its Web site. Provide a copy of the minutes to all board meetings to any person who requests the minutes within 90 days of the board meeting. Make available a copy of its Form 990-T, but not its Form 990, to the public for a period of up to two years.

Make available a copy of its Form 990 to the public for a period of up to three years.

Artists Unlimited was formed to support the local art community. Which of the following activities would be considered unrelated business income? Income from the sale of tee shirts that feature art reproductions by local artists, produced and sold by volunteers. Interest and dividend income from investments that were donated by a major retail company. Sponsorship of an event by an art supply company, whose name was prominently displayed at the event. Monthly rental fees for office space used by two small legal firms. The rental fees are used to make mortgage and interest payments on the Artists Unlimited's building.

Monthly rental fees for office space used by two small legal firms. The rental fees are used to make mortgage and interest payments on the Artists Unlimited's building.

When organizers and directors apply for not-for-profit status from a state they are subject to which of the following? Oversight, transparency and accountability for performance. Supervision, transparency, and profitability. Oversight, reliability, and transparency of performance. Responsibility for performance, accountability, and liability.

Oversight, transparency and accountability for performance.

Jan and Dean decided to form a charitable organization, I Love Rock N Rollers, to provide funding to assist former rock and roll group members who have become homeless. They are planning to hold a "mini-Woodstock" event to raise money, with music by groups from the '60s and '70s. The event will offer food and beverages, and the sale of memorabilia related to the event. Before they go any further, Jan and Dean need to: Prepare articles of incorporation and bylaws, obtain an EIN from the IRS if the organization will have employees, apply for permission to solicit charitable contributions and apply for 501(c)(3) status from the IRS. Prepare articles of incorporation and bylaws and file them with the state, obtain an EIN from the IRS if the organization will have employees, apply for permission to solicit charitable contributions and apply for 501(a) status from the IRS. Prepare articles of incorporation and bylaws and file them with the state, obtain an EIN from the IRS, apply for permission to solicit charitable contributions and apply for 501(c)(3) status from the IRS. Prepare articles of incorporation and bylaws, obtain an EIN from the IRS, apply for permission to solicit charitable contributions and apply for 501(a) status from the IRS.

Prepare articles of incorporation and bylaws and file them with the state, obtain an EIN from the IRS, apply for permission to solicit charitable contributions and apply for 501(c)(3) status from the IRS.

1.A not-for-profit exempt under IRC Sec. 501(c)(3) that receives most of its support from a small number of donors or investment income than it does from the public at large.

Private foundation

4.Is an appropriate amount spent on accomplishing the organization's program goals?

Program effectiveness

The income most likely to be considered unrelated business income of a human service organization that provides immunizations to children in the community is: Rental of extra space in the building. Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost. Interest and dividend income on investments. Gain on the sale of equipment no longer needed by the organization.

Regular sale of sweatshirts with the organization's logo on it at a price considerably above cost.

Which of the following not-for-profit organizations is most likely to be tax-exempt under IRC Sec. 501(c)(3)? Beta Kappa Alpha Sorority. Peaceful Dreams Cemetery Association. Regional Association of Tree Trimmers. Survivors of Breast Cancer Club.

Survivors of Breast Cancer Club.

An organization was formed solely to support the creation of a high-speed rail system between two major metropolitan areas. The organization will be offering voter education seminars to be sure that the public is educated about the benefits of the rail system before the proposal is presented to the legislature. Under what circumstances would the organization be able to maintain charitable tax-exempt status? Information in its brochures is strictly based on confirmable facts. The brochures provide information only about the benefits of the system, but do not directly attempt to persuade voters to vote for the system. The organization properly elects to make expenditures to influence legislation on Form 5768. The organization would not be eligible for charitable tax-exempt status.

The organization would not be eligible for charitable tax-exempt status.

Under the IRC, public charities are allowed to conduct direct lobbying activity. What, if any, limit is placed on such lobbying? There is no limit provided no propaganda is distributed by the charity. There is no limit provided no individual or group contributes more than $500 to lobbying activity in any one year. There is no limit provided the lobbying activity directly affects the NFP's charitable purpose. There is a limit of up to $1,000,000 a year based on the size of the NFP's exempt program costs.

There is a limit of up to $1,000,000 a year based on the size of the NFP's exempt program costs.

If a tax-exempt organization dissolves and goes out of business, it must distribute its assets to another tax-exempt organization or a governmental entity.

True

When a tax-exempt organization dissolves, the managers must ensure that: All assets are appropriately transferred to another tax-exempt organization. All creditors get paid. All federal, state, and local taxes are paid. All of the above.

all of the above.

A not-for-profit organization that is exempt from federal income taxes under IRC Sec. 501(c)(3), exists to make grants to public charities, and receives its support from a small number of individuals or corporations and investment income rather than from the public at large is called a: Private foundation. Public charity. Nongovernmental organization. Public foundation.

private foundation.

You are considering contributing to a local charity whose primary function is to provide after-school care for underprivileged children. However, you saw in the paper that the president of the organization just bought a house that is located in a very expensive gated community, and you are concerned that more money is going to the president's salary than to the actual after-school care. Before you donate, you want to feel comfortable that this is not the case. Which of the following is a financial measurement that might help you in determining the amount of resources going to after-school care? Fund-raising efficiency Program effectiveness Fund-raising ratio Efficiency

program effectiveness.