HAC Tax-Exempt Organization Accounting 2

Question 1

Under IRC Section 501(c)(3), which activity could jeopardize a healthcare organization's tax-exempt status?

Accepted Answer

Distributing net earnings to board members as bonuses

Answer

IRC 501(c)(3) prohibits any part of net earnings from inuring to the benefit of private shareholders or individuals, including board members.

Question 2

A tax-exempt hospital receives $500,000 in investment income from its endowment. How is this income treated for federal tax purposes?

Accepted Answer

Exempt from federal income tax as passive investment income

Answer

Passive investment income such as dividends, interest, and capital gains from an endowment is generally exempt from federal income tax for 501(c)(3) organizations.

Question 3

Which IRS form must a tax-exempt healthcare organization file annually to maintain its exempt status?

Accepted Answer

Form 990

Answer

Tax-exempt organizations must file Form 990 (Return of Organization Exempt From Income Tax) annually with the IRS.

Question 4

A nonprofit hospital conducts a health fair open to the public at no charge. This activity is best classified as:

Accepted Answer

A related exempt activity

Answer

A free public health fair directly furthers the organization's charitable healthcare mission and is a related exempt activity.

Question 5

What is the primary purpose of IRS Schedule H (Form 990) for tax-exempt hospitals?

Accepted Answer

To disclose community benefit spending and charity care

Answer

Schedule H requires tax-exempt hospitals to report community benefit activities, charity care, and financial assistance policies.

(HAC) Healthcare Accounting Certification Practice Test

(HAC) Healthcare Accounting Certification Practice Test

HAC Tax-Exempt Organization Accounting 2