Nonprofit Nonprofit Legal and Compliance 2

Question 1

What is a private foundation in contrast to a public charity?

Accepted Answer

An organization that derives most of its support from a single source like a family or corporation, subject to stricter IRS rules

Answer

Private foundations are 501(c)(3) organizations that typically receive funding from one source and are subject to excise taxes, mandatory distributions, and self-dealing restrictions.

Question 2

What is the minimum distribution requirement for private foundations?

Accepted Answer

They must distribute at least 5% of investment assets annually for charitable purposes

Answer

Private foundations are required by the IRS to distribute at least 5% of the fair market value of their investment assets each year to charitable purposes.

Question 3

What is lobbying in the nonprofit context and how does it affect 501(c)(3) status?

Accepted Answer

501(c)(3) organizations may engage in a limited amount of lobbying but are prohibited from substantial lobbying activity

Answer

While 501(c)(3) organizations may engage in limited legislative lobbying, substantial lobbying can jeopardize their tax-exempt status.

Question 4

What political activity is absolutely prohibited for 501(c)(3) organizations?

Accepted Answer

Endorsing or opposing candidates for public office

Answer

The IRS absolutely prohibits 501(c)(3) organizations from endorsing, opposing, or contributing to political campaigns of candidates for public office.

Question 5

What is the role of a state Attorney General regarding nonprofits?

Accepted Answer

Overseeing charitable organizations to ensure assets are used for the public benefit

Answer

State Attorneys General have broad authority to investigate and take legal action against nonprofits that misuse charitable assets or engage in fraud.

Nonprofit Practice Test

Nonprofit Practice Test

Nonprofit Nonprofit Legal and Compliance 2