Tax-Exempt Organization Accounting Flashcards

A tax-exempt hospital leases office space to a for-profit physician group at fair market value. The rental income is:

Answer: Exempt from UBIT as passive rental income

Passive rental income from real property is generally excluded from unrelated business taxable income under IRC Section 512(b)(3).

Under the intermediate sanctions rules (IRC Section 4958), an 'excess benefit transaction' occurs when:

Answer: A disqualified person receives compensation exceeding fair market value

An excess benefit transaction occurs when a tax-exempt organization provides an economic benefit to a disqualified person that exceeds the value of services provided.

Which of the following is considered a 'disqualified person' under IRC Section 4958 intermediate sanctions rules?

Answer: The chief executive officer of the organization

Disqualified persons include those in a position to exercise substantial influence over the organization's affairs, such as the CEO.

A healthcare nonprofit's endowment is invested in publicly traded stocks. The unrealized gains at year-end should be reported on the Statement of Financial Position as:

Answer: An increase in net assets

Under ASC 958, unrealized gains on investments are reported as changes in net assets in the period they occur, increasing total net assets on the balance sheet.

A tax-exempt hospital provides $2 million in charity care. For Form 990 Schedule H reporting, charity care is measured at:

Answer: Cost of providing the care

For Schedule H community benefit reporting, charity care is measured at the cost of providing care, not the forgiven charges.

Which statement correctly describes the public support test for a 501(c)(3) public charity healthcare organization?

Answer: It must derive at least 33.3% of support from the general public or government sources

Under IRC Section 509(a)(1) and (2), public charities must meet a public support test, generally requiring at least one-third of total support from public or governmental sources.

A nonprofit healthcare system acquires a for-profit hospital. The acquisition creates goodwill of $10 million. Under GAAP, this goodwill is:

Answer: Tested annually for impairment and not amortized

Under ASC 350, goodwill for public companies and nonprofits following ASC 958 is tested annually for impairment rather than amortized (unless the private company alternative is elected).