NFP EXAM REVIEW QUESTIONS WITH
CORRECT ANSWERS
What is an IRC Sec 527 org? Are these org tax exempt? What filing requirements
have been imposed on 527 org by campaign finance laws? - ANSWER-This section
consists of various organizations like political parties, political campaigns, and
organizations as political action committee. These organizations are exempt from
tax. The filing requirements include
-NFP should periodically file Form 8872.
-inform the IRS on the name and address on individuals who contributes more than
$200 towards the NFP
-and the info on the name and address of individuals who receive more than $500 on
annual basis from the NFP
What are excessive benefits and what are the consequences of paying/receiving
excessive benefits? - ANSWER-Excessive benefits is an amount received by the
NFP organizations officers. The amount is generated from unreasonable
transactions (bargain price, excessive compensation) Consequences of paying or
receiving excessive benefits include an additional 25% tax on excess benefits and
intermediate sanctions.
What are articles of incorporation and how do they differ from by-laws of an NFP
org.? - ANSWER-The Articles of Incorporation indicates the main purpose and
mission of charitable organization. The mission and the purpose of the charitable
organization are important information needed at the time of regulatory purposes.
Bylaws are internal documents that consist of responsibilities of the board.
Prepare articles of incorporation and by-laws and file them with the state, obtain an
EIN from the IRS, apply for permission to solicit charitable contributions, and apply
for 501(c)(3) status from the IRS. - ANSWER-Prepare articles of incorporation and
by-laws and file them with the state, obtain an EIN from the IRS, apply for permission
to solicit charitable contributions, and apply for 501(c)(3) status from the IRS.
When organizers and directors apply for not-for-profit status from a state they are
subject to which of the following? - ANSWER-Oversight, transparency, and
accountability for performance.
Approval from the IRS of 501(c)(3) status exempts an organization from which of the
following? - ANSWER-Federal income taxes
Under the IRC, public charities are allowed to conduct direct lobbying activity. What,
if any, limit is placed on such lobbying? - ANSWER-If a public charity makes a
501(h) election, there is a limit of up to $1,000,000 a year based on the size of the
NFP's exempt program costs.
The primary reason that NFP org. should report expenses incurred for program
purposes separately from those for supporting services such as management and
general and fund-raising is that - ANSWER-Donors, potential donors, oversight
, bodies, and others need to know what percentage of total expenses are being
incurred for carrying out the NFP's programs
Identify ways in which states regulate NFP organizations? - ANSWER-States grant
legal life, bilaws, meetings, registration for license to solicit, regulate lobbying and
political activities.
Explain a major difference between a 501c3 tax excempt org. and a 501c7 tax
exempt org differ. - ANSWER-A 501(c)(3) organization is organized and operated for
religious, charitable, scientific, literary, educational purposes... charitable deductions
while a 501(c)(7) organization is organized and operated for the social or
recreational purposes of a group of people does not offer charitable deduction.
What are the distinguishing characteristics between a public charity and a private
foundation? What is a public support test and how does it relate to pub charities and
priv found.? - ANSWER-A public charity receives financial support from the general
public. Private Foundations receive most of their financial support from a few people,
such as a family or a group of friends, etc. Public charities are more open to the
public while private foundations are not. A public support test is conducted by the
government to see if an organization is receiving substantial support from the public
or not. Depending on this support will decide whether the organization is public or
private.
How can a nfp museum ensure that its gift shop activities will not result in an
unrelated business income tax liability? - ANSWER-A gift shop is considered
unrelated to the tax exempt mission of the museum and regularly carries on
business. It will be subjected to the unrelated business income tax if its net income is
greater than $1000.
A not-for-profit 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 - ANSWER-Private foundation
An organization was formed solely to support the creation of a high speed rail
system between two major metro areas. The org. will be offering voter education
seminars to be sure that the public is educated ab the benefits of rail system. Under
what circumstances would the org. be able to maintain charitable tax-exempt status?
- ANSWER-The organization would not be eligible for charitable tax exempt status.
Artists Unlimited was formed to support the local art community. Which of the
following activities would be considered unrelated business income? - ANSWER-
Sponsorship of an event by an art supply company, whose name was prominently
displayed at the event.
You are considering contributing to a local charity whose primary function is to
provide after school care for underprivileged children. You saw in the paper the the
president just bought a house that is in a very expensive community. Before you
donate, you want to look it up. Which of the following is a financial measurement that
might help you in determining the amount of resources? - ANSWER-Efficiency
CORRECT ANSWERS
What is an IRC Sec 527 org? Are these org tax exempt? What filing requirements
have been imposed on 527 org by campaign finance laws? - ANSWER-This section
consists of various organizations like political parties, political campaigns, and
organizations as political action committee. These organizations are exempt from
tax. The filing requirements include
-NFP should periodically file Form 8872.
-inform the IRS on the name and address on individuals who contributes more than
$200 towards the NFP
-and the info on the name and address of individuals who receive more than $500 on
annual basis from the NFP
What are excessive benefits and what are the consequences of paying/receiving
excessive benefits? - ANSWER-Excessive benefits is an amount received by the
NFP organizations officers. The amount is generated from unreasonable
transactions (bargain price, excessive compensation) Consequences of paying or
receiving excessive benefits include an additional 25% tax on excess benefits and
intermediate sanctions.
What are articles of incorporation and how do they differ from by-laws of an NFP
org.? - ANSWER-The Articles of Incorporation indicates the main purpose and
mission of charitable organization. The mission and the purpose of the charitable
organization are important information needed at the time of regulatory purposes.
Bylaws are internal documents that consist of responsibilities of the board.
Prepare articles of incorporation and by-laws and file them with the state, obtain an
EIN from the IRS, apply for permission to solicit charitable contributions, and apply
for 501(c)(3) status from the IRS. - ANSWER-Prepare articles of incorporation and
by-laws and file them with the state, obtain an EIN from the IRS, apply for permission
to solicit charitable contributions, and apply for 501(c)(3) status from the IRS.
When organizers and directors apply for not-for-profit status from a state they are
subject to which of the following? - ANSWER-Oversight, transparency, and
accountability for performance.
Approval from the IRS of 501(c)(3) status exempts an organization from which of the
following? - ANSWER-Federal income taxes
Under the IRC, public charities are allowed to conduct direct lobbying activity. What,
if any, limit is placed on such lobbying? - ANSWER-If a public charity makes a
501(h) election, there is a limit of up to $1,000,000 a year based on the size of the
NFP's exempt program costs.
The primary reason that NFP org. should report expenses incurred for program
purposes separately from those for supporting services such as management and
general and fund-raising is that - ANSWER-Donors, potential donors, oversight
, bodies, and others need to know what percentage of total expenses are being
incurred for carrying out the NFP's programs
Identify ways in which states regulate NFP organizations? - ANSWER-States grant
legal life, bilaws, meetings, registration for license to solicit, regulate lobbying and
political activities.
Explain a major difference between a 501c3 tax excempt org. and a 501c7 tax
exempt org differ. - ANSWER-A 501(c)(3) organization is organized and operated for
religious, charitable, scientific, literary, educational purposes... charitable deductions
while a 501(c)(7) organization is organized and operated for the social or
recreational purposes of a group of people does not offer charitable deduction.
What are the distinguishing characteristics between a public charity and a private
foundation? What is a public support test and how does it relate to pub charities and
priv found.? - ANSWER-A public charity receives financial support from the general
public. Private Foundations receive most of their financial support from a few people,
such as a family or a group of friends, etc. Public charities are more open to the
public while private foundations are not. A public support test is conducted by the
government to see if an organization is receiving substantial support from the public
or not. Depending on this support will decide whether the organization is public or
private.
How can a nfp museum ensure that its gift shop activities will not result in an
unrelated business income tax liability? - ANSWER-A gift shop is considered
unrelated to the tax exempt mission of the museum and regularly carries on
business. It will be subjected to the unrelated business income tax if its net income is
greater than $1000.
A not-for-profit 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 - ANSWER-Private foundation
An organization was formed solely to support the creation of a high speed rail
system between two major metro areas. The org. will be offering voter education
seminars to be sure that the public is educated ab the benefits of rail system. Under
what circumstances would the org. be able to maintain charitable tax-exempt status?
- ANSWER-The organization would not be eligible for charitable tax exempt status.
Artists Unlimited was formed to support the local art community. Which of the
following activities would be considered unrelated business income? - ANSWER-
Sponsorship of an event by an art supply company, whose name was prominently
displayed at the event.
You are considering contributing to a local charity whose primary function is to
provide after school care for underprivileged children. You saw in the paper the the
president just bought a house that is in a very expensive community. Before you
donate, you want to look it up. Which of the following is a financial measurement that
might help you in determining the amount of resources? - ANSWER-Efficiency
