IRS Charitable Organizations 2 — Questions and Answers
Question 1: A 501(c)(3) organization that provides more than what percentage of its services to private interests risks losing its tax-exempt status due to private benefit?
- More than 5% (Correct answer)
- More than 10%
- More than 15%
- More than 20%
Correct answer: More than 5%
Private benefit beyond an insubstantial amount (generally more than 5%) can jeopardize a 501(c)(3) organization's tax-exempt status.
Question 2: Which form must a charitable organization file to notify the IRS of its intent to operate as a 501(c)(4) social welfare organization?
- Form 1024-A (Correct answer)
- Form 1023
- Form 990-N
- Form 8832
Correct answer: Form 1024-A
Form 1024-A is used by organizations seeking recognition as a 501(c)(4) social welfare organization.
Question 3: Under the intermediate sanctions rules, who is considered a 'disqualified person' of a 501(c)(3) organization?
- Anyone in a position to exercise substantial influence over the organization (Correct answer)
- Only board members and officers
- Only the CEO and CFO
- Any employee earning over $100,000
Correct answer: Anyone in a position to exercise substantial influence over the organization
A disqualified person is anyone who can exercise substantial influence over the organization's affairs, including founders, board members, and major donors.
Question 4: What is the excise tax rate imposed on excess benefit transactions on the disqualified person who received the benefit?
- 25% (Correct answer)
- 10%
- 35%
- 50%
Correct answer: 25%
The initial excise tax on the disqualified person who received the excess benefit is 25% of the excess benefit amount.
Question 5: A charity receives a $500 donation and gives the donor a $75 dinner in return. What amount can the donor deduct?
- $425 (Correct answer)
- $500
- $75
- $0
Correct answer: $425
When a donor receives a benefit in exchange for a contribution, the deductible amount is only the excess of the contribution over the fair market value of the benefit received ($500 − $75 = $425).
Question 6: Which type of charitable organization is generally exempt from the requirement to file Form 990?
- Churches and certain church-affiliated organizations (Correct answer)
- Private foundations
- Supporting organizations
- Donor-advised funds
Correct answer: Churches and certain church-affiliated organizations
Churches, their integrated auxiliaries, and conventions or associations of churches are generally not required to file Form 990.
Question 7: A donor contributes appreciated stock (basis $10,000, FMV $40,000) held more than one year to a public charity. What is the maximum deduction assuming the donor meets the AGI limit?
- $40,000 (Correct answer)
- $10,000
- $30,000
- $20,000
Correct answer: $40,000
A donor contributing long-term capital gain property to a public charity may deduct the full fair market value, not the cost basis.
IRS Charitable Organizations 2
A 501(c)(3) organization that provides more than what percentage of its services to private interests risks losing its tax-exempt status due to private benefit?