IRS Charitable Organizations 3 — Questions and Answers
Question 1: What is the deadline for a new organization (other than a church) to file Form 1023 to be recognized as a 501(c)(3) from its date of formation?
- 27 months (Correct answer)
- 12 months
- 18 months
- 36 months
Correct answer: 27 months
Organizations must file Form 1023 within 27 months of formation to have their tax-exempt status recognized retroactively to the date of formation.
Question 2: Which schedule of Form 990 must hospitals complete to report community benefit activities?
- Schedule H (Correct answer)
- Schedule A
- Schedule B
- Schedule L
Correct answer: Schedule H
Schedule H is required for hospitals to report community benefit, community building activities, and billing/collection practices.
Question 3: A 501(c)(3) organization earns $50,000 from renting out office space to an unrelated for-profit business. How is this income generally treated?
- As unrelated business income subject to UBIT (Correct answer)
- As exempt function income, fully excluded
- As passive income exempt from all taxes
- As a return of capital, non-taxable
Correct answer: As unrelated business income subject to UBIT
Rental income from real property to unrelated parties is generally treated as unrelated business income (UBI) unless certain exclusions apply.
Question 4: Under what circumstance is rental income from real property NOT subject to UBIT for a tax-exempt organization?
- When the property is not debt-financed and no personal services are provided to tenants (Correct answer)
- When the tenant is also a nonprofit organization
- When the rental term is less than one year
- When rent is below fair market value
Correct answer: When the property is not debt-financed and no personal services are provided to tenants
Rental income from real property is excluded from UBIT when the property is not debt-financed and the organization does not provide substantial services to tenants.
Question 5: What is the annual gross receipts threshold below which a 501(c)(3) organization may file Form 990-N (e-Postcard) instead of Form 990?
- $50,000 or less (Correct answer)
- $25,000 or less
- $100,000 or less
- $200,000 or less
Correct answer: $50,000 or less
Organizations whose gross receipts are normally $50,000 or less may satisfy their annual reporting requirement by filing the Form 990-N e-Postcard.
Question 6: Which of the following best describes a Type III non-functionally integrated supporting organization?
- One that must distribute at least 85% of its adjusted net income to supported organizations (Correct answer)
- One that is under direct control of its supported organizations
- One that must be operated, supervised, or controlled by its supported organizations
- One that conducts charitable activities directly
Correct answer: One that must distribute at least 85% of its adjusted net income to supported organizations
A Type III non-functionally integrated supporting organization must generally distribute at least 85% of its adjusted net income annually to its supported organizations.
Question 7: A private foundation makes a grant to an individual for travel expenses related to charitable work. What IRS process is required?
- The foundation must obtain advance IRS approval for the grant program (Correct answer)
- No special approval is needed as long as the amount is under $10,000
- The foundation must file Form 4506 before the grant
- Individual grants are always prohibited for private foundations
Correct answer: The foundation must obtain advance IRS approval for the grant program
Private foundations making grants to individuals must receive advance approval from the IRS for their grant-making procedures under IRC Section 4945.
IRS Charitable Organizations 3
What is the deadline for a new organization (other than a church) to file Form 1023 to be recognized as a 501(c)(3) from its date of formation?