Not-for-profit Organizations Derives Quiz

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  • 1/20 Questions

    If a tax-exempt organization dissolves and goes out of business, it must distribute its assets to another tax-exempt organization or a governmental entity.

    • True
    • False
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About This Quiz

Explore the regulatory frameworks governing not-for-profit organizations. This quiz covers state and federal regulations, compliance requirements, lobbying limits, and distinctions between public charities and private foundations, enhancing understanding of legal and tax aspects pertinent to non-profits.

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  • 2. 

    A not-for-porfit organization that is exempt from federal income taxes under IRC Sec. 501(c)(3), exists to make grants to public charities, and receives its support from a small number of individuals or corporations and investment income rather than from the public at large is called a:

    • Private foundation

    • Public charity

    • Nongovernmental organization

    • Public foundation

    Correct Answer
    A. Private foundation
    Explanation
    A private foundation is a not-for-profit organization that is exempt from federal income taxes under IRC Sec. 501(c)(3). It exists to make grants to public charities and receives its support from a small number of individuals or corporations and investment income rather than from the public at large. Unlike public charities, private foundations typically do not actively engage in direct charitable activities but instead provide funding to other organizations that carry out charitable work.

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  • 3. 

    Public disclosure rules require that a tax-exempt not-for-profit organization:

    • Make available a copy of its Form 990 to the public for a period of up to three years.

    • Post a copy of its articles of incorporation and by-laws on its Web site.

    • Provide a copy of the minutes to all board meetings to any person who requests the minutes within 90 days of the board meeting.

    • Make available a copy of its Form 990-T, but not its Form 990, to the public for a period of up to two years.

    Correct Answer
    A. Make available a copy of its Form 990 to the public for a period of up to three years.
    Explanation
    Public disclosure rules require tax-exempt not-for-profit organizations to make their Form 990 available to the public for a period of up to three years. Form 990 is a document that provides information about the organization's finances, activities, and governance. By making this form accessible to the public, the organization promotes transparency and accountability. This allows stakeholders, such as donors and the general public, to review the organization's financial information and ensure that it is operating in accordance with its stated mission and goals.

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  • 4. 

    Federal regulation of not-for-profit organizations derives from the federal government's power to:

    • Grant licenses for charitable solicitation

    • Grant exemption from federal income taxes

    • Grant exemption from sales taxes

    • Give legal life to a not-for-profit corporation

    Correct Answer
    A. Grant exemption from federal income taxes
    Explanation
    The correct answer is "Grant exemption from federal income taxes." Federal regulation of not-for-profit organizations is based on the federal government's power to grant these organizations exemption from federal income taxes. This exemption allows not-for-profit organizations to retain more of their funds for their charitable purposes.

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  • 5. 

    When a tax-exempt organization dissolves, the managers must ensure that:

    • All assets are appropriately transferred to another tax-exempt organization

    • All creditors get paid

    • All federal, state, and local taxes are paid

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    When a tax-exempt organization dissolves, the managers have a responsibility to ensure that all assets are transferred to another tax-exempt organization, all creditors are paid, and all federal, state, and local taxes are settled. This ensures that the organization fulfills its financial obligations and that its assets and funds are appropriately utilized for the intended charitable purposes.

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  • 6. 

    Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Not-for-profit corporations can engage in lobbying activities and attempt to influence legislation or politicians. While there are certain restrictions and limitations on the extent of their lobbying activities, they are not completely prohibited from engaging in such activities. Therefore, the statement is false.

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  • 7. 

    An example of unrelated  business income for which a tax-exempt entity may have to pay taxes at corporate rates is:

    • An environmental organization that offers advertising to nonmembers in its annual catalog

    • A university that offers computer services to students and faculty for a technology fee

    • A credit union that offers members safety deposit boxes for a nominal fee.

    • All of the above

    Correct Answer
    A. An environmental organization that offers advertising to nonmembers in its annual catalog
    Explanation
    An environmental organization that offers advertising to nonmembers in its annual catalog is an example of unrelated business income for which a tax-exempt entity may have to pay taxes at corporate rates. This is because advertising is considered a commercial activity that is unrelated to the organization's tax-exempt purpose. Therefore, the income generated from this activity is subject to taxation at corporate rates.

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  • 8. 

    A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a:

    •  Public charity.

    • Private foundation.

    • Public foundation.

    • Voluntary health and welfare organization.

    Correct Answer
    A.  Public charity.
    Explanation
    A tax-exempt organization that receives its support primarily from a large number of individuals or corporations and a relatively small amount from investment income is called a public charity. This type of organization relies on donations and contributions from the public to fund its activities and programs. Unlike private foundations, which typically receive their support from a single source or a small group of donors, public charities have a broader base of support from the community. Public foundations and voluntary health and welfare organizations may also receive support from individuals and corporations, but they do not necessarily rely primarily on this type of funding.

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  • 9. 

    The tool the IRS most likely will use when key officers in a tax-exempt entity receive excess economic benefits from transactions with the not-for-profit organization is:

    • Fines and forfeits

    • Revocation of the organization's tax-exempt status

    • Intermediate sanctions

    • Public display of offenders on the IRS's Web site

    Correct Answer
    A. Intermediate sanctions
    Explanation
    The IRS is likely to use intermediate sanctions when key officers in a tax-exempt entity receive excess economic benefits from transactions with the not-for-profit organization. Intermediate sanctions are penalties imposed by the IRS, such as excise taxes, on individuals who engage in prohibited transactions that result in excess benefits. These sanctions are designed to deter individuals from taking advantage of their positions within tax-exempt organizations for personal gain. Revocation of tax-exempt status, fines and forfeits, and public display of offenders on the IRS's website are also possible consequences, but intermediate sanctions are specifically targeted at addressing excess benefit transactions.

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  • 10. 

    State regulation of not-for-profit organizations derives from the state's power to:

    • Grant exemption from income taxes

    • Give legal life to a not-for-profit corporation

    • Grant exemption from sales taxes

    • Grant licenses for charitable solicitation

    Correct Answer
    A. Give legal life to a not-for-profit corporation
    Explanation
    State regulation of not-for-profit organizations derives from the state's power to give legal life to a not-for-profit corporation. This means that the state has the authority to create and recognize the legal existence of not-for-profit corporations, which allows them to operate as separate entities with certain rights and responsibilities. By granting legal life to these corporations, the state can then establish regulations and oversight to ensure that they are operating in accordance with the law and fulfilling their intended charitable or nonprofit purposes.

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  • 11. 

    Which of the following statements most accurately describes joint costs?

    • Costs that are identifiable with a program, management and general, or fundraising function.

    • Staff costs related to fundraising events or campaigns.

    • Costs associated with an activity that includes a fundraising component that may be allocated to two or more functional expenses categories if certain criteria are met.

    • Costs shared by two organizations conducting a fundraising event or activity in tandem.

    Correct Answer
    A. Costs associated with an activity that includes a fundraising component that may be allocated to two or more functional expenses categories if certain criteria are met.
    Explanation
    Joint costs refer to costs that are associated with an activity that includes a fundraising component and can be allocated to two or more functional expense categories if certain criteria are met. This means that the costs can be divided and assigned to different expense categories based on specific criteria. This option accurately describes the concept of joint costs.

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  • 12. 

    Under the IRC, public charities are allowed to conduct direct lobbying activity. What, if any, limit is placed on such lobbying?

    • There is no limit provided no propaganda is distributed by the charity

    • There is no limit provided no individual or group contributes more than $500 to lobbying activity in any one year

    • There is no limit provided the lobbying activity directly affects the NFP's charitable purpose

    • There is a limit of up to $1,000,000 a year based on the size of the NFP's exempt program costs

    Correct Answer
    A. There is a limit of up to $1,000,000 a year based on the size of the NFP's exempt program costs
    Explanation
    The correct answer is that there is a limit of up to $1,000,000 a year based on the size of the NFP's exempt program costs. This means that public charities are allowed to conduct direct lobbying activity, but there is a limit on the amount of money they can spend on such lobbying. The limit is determined by the size of the charity's exempt program costs, and it cannot exceed $1,000,000 per year.

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  • 13. 

    Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service:

    • Only if they have unrelated business income.

    • If they are nongovernmental and not a church.

    • Whether they are governmental or nongovernmental.

    • Only if they are a private foundation, not a public charity.

    Correct Answer
    A. If they are nongovernmental and not a church.
    Explanation
    Tax-exempt organizations, which are nongovernmental and not a church, are required to complete a Form 990 and submit it to the Internal Revenue Service. This form is used to provide information about the organization's activities, finances, and governance. It helps the IRS ensure that tax-exempt organizations are operating within the guidelines set forth by the government.

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  • 14. 

    A measure of performance of a not-for-profit organization that captures the efficiency of raising contributions is:

    • Unrestricted net assets divided by operating expenses

    • Revenues divided by expenses

    • Fund-raising expenses divided by public support

    • Program expenses divided by total expenses

    Correct Answer
    A. Fund-raising expenses divided by public support
    Explanation
    This measure calculates the efficiency of raising contributions by dividing the fund-raising expenses by the public support received. It shows how much of the public support is being used to cover the expenses associated with fundraising efforts. A lower ratio indicates that the organization is more efficient in raising contributions, as it is able to raise a larger amount of funds while keeping the expenses low. Conversely, a higher ratio suggests that a significant portion of the public support is being used to cover fundraising expenses, which may indicate inefficiency in raising contributions.

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  • 15. 

    To be legally recognized as a not-for-profit organization, the Save the Local Trees Association should:

    • Apply or register with the state government where it operates

    • Register with the IRS

    • Apply or register with the local government(s) where it operates

    • All of the above

    Correct Answer
    A. Apply or register with the state government where it operates
    Explanation
    To be legally recognized as a not-for-profit organization, the Save the Local Trees Association needs to apply or register with the state government where it operates. This is because each state has its own requirements and regulations for non-profit organizations to operate within its jurisdiction. By applying or registering with the state government, the organization can ensure that it meets all the necessary legal obligations and can avail the benefits and protections provided to non-profit organizations. Registering with the IRS is also important as it allows the organization to obtain tax-exempt status, while applying or registering with the local government(s) where it operates may be required for obtaining necessary permits and licenses to carry out its activities.

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  • 16. 

     A 501(c)(3 ) organization must provide donors with a written disclosure of the amount of the donation if the donation is $1,000 or more.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    A 501(c)(3) organization is not required to provide donors with a written disclosure of the amount of the donation if the donation is $1,000 or more.

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  • 17. 

    The "ongoing compliance" stage of the life cycle of a tax-exempt organization that interacts with the IRS includes:

    • Notifying the IRS about a merger

    • Application for exempt status with Form 1023

    • Meeting public disclosure requirements

    • Filing unrelated business income tax returns

    Correct Answer
    A. Meeting public disclosure requirements
    Explanation
    In the "ongoing compliance" stage of a tax-exempt organization's life cycle, one of the tasks that the organization needs to fulfill is meeting public disclosure requirements. This means that the organization must provide certain information to the public, such as its annual financial statements and details about its programs and activities. Meeting these requirements helps ensure transparency and accountability for the organization's operations and finances. It allows the public to make informed decisions about supporting the organization and also helps maintain the organization's tax-exempt status.

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  • 18. 

    The Internal Revenue Service may impose intermediate sanctions on all of the following transactions between a not-for-profit organization and its executive officer except:

    • Excessive compensation.

    • More than the fair rental value for property owned by the officer.

    • A bargain on the sale of assets.

    • Fringe benefits comparable to those given to all employees.

    Correct Answer
    A. Fringe benefits comparable to those given to all employees.
    Explanation
    The Internal Revenue Service may impose intermediate sanctions on transactions between a not-for-profit organization and its executive officer if they involve excessive compensation, more than fair rental value for property owned by the officer, or a bargain on the sale of assets. However, fringe benefits comparable to those given to all employees would not be subject to intermediate sanctions.

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  • 19. 

    A state has the obligation to monitor and regulate a not-for-profit (NFP) organization because it granted the NFP tax-exempt status through the not-for-profit corporation laws.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The explanation for the answer "False" is that the state does not have the obligation to monitor and regulate a not-for-profit (NFP) organization solely because it granted the NFP tax-exempt status through the not-for-profit corporation laws. While the state may have certain oversight responsibilities for NFP organizations, such as ensuring compliance with tax laws and reporting requirements, the granting of tax-exempt status does not automatically impose a monitoring and regulatory obligation on the state.

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  • 20. 

    A good measure of whether a not-for-profit organization is operating its programs efficiently is:

    • Fund-raising expenses as a percentage of public support.

    •  The ratio of program expenses to number of clients served.

    • Total revenues divided by total expenses.

    • Percentage of total expenses spent on the program function as opposed to support function.

    Correct Answer
    A.  The ratio of program expenses to number of clients served.
    Explanation
    The ratio of program expenses to number of clients served is a good measure of whether a not-for-profit organization is operating its programs efficiently. This ratio indicates how much money is being spent on each client served, and a lower ratio would suggest that the organization is able to serve more clients with the same amount of expenses. This measure focuses on the effectiveness of the organization's programs in relation to the number of people they are serving, rather than just looking at fundraising expenses or total revenues and expenses.

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  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Oct 19, 2013
    Quiz Created by
    Mstewart21

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