Accounting for Governmental and Nonprofit Entities, 18e (Reck)
1) 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.
2) The federal government’s primary objective in regulating not-for-profit organizations through
the income tax laws is to limit the number of exempt organizations that operate at any one point in
time.
3) Not-for-profit corporations cannot lobby or attempt to influence legislation or politicians.
4) The not-for-profit organization applying for tax-exempt status determines the appropriate
subsection under IRC Sec. 501 for which it wants to be considered and the Internal Revenue
Service then approves or denies the application.
5) The unrelated business income tax could be a significant cost and therefore should be of concern
to tax-exempt organizations.
6) Intermediate sanctions can be imposed by the Internal Revenue Service, in addition to revoking
the tax-exempt status for organizations that confer excessive economic benefits on officers of the
organization.
7) 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.
8) Board members of a not-for-profit organization have a fiduciary responsibility to provide fiscal
guidance and ongoing governance over the not-for-profit organization to ensure that its exempt
mission is carried out as described in the incorporating documents and exempt application.
9) All officers of a not-for-profit organization have the same responsibilities to the organization
and its constituents.
10) Not-for-profit organizations are so diverse in nature that it is not feasible to find benchmarks
with which to compare their financial and operating performance.
11) Not-for-profit organizations risk loss of their tax-exempt status if they participate in a political
campaign on behalf of a candidate for public office.
12) “Excess benefit transactions” are those in which persons who have substantial influence over
the not-for-profit organization engage in transactions that result in economic benefits to them that
are excessive, such as unreasonable compensation, sale of assets at bargain prices, and lease
arrangements.
13) One of the limitations of financial ratio analysis for not-for-profit organizations is that donors
may incorrectly assume that there are federal or state laws that govern the percentage of annual
revenues that a charity must spend on its programs.
14) The ratio unrestricted net assets as a percent of operating expenses is helpful in determining if
the not-for-profit organization can cover its debt service expense.
15) 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.
16) Only 501(c)(3) organizations receiving at least 50 percent of their support from the public at
large rather than a few individual donors can be considered public charities.
17) Political parties and campaign committees can qualify for tax–exempt status.
18) All not-for-profit organizations are required to file some type of Form 990 with the Internal
Revenue Service.
19) Unrelated business income tax is reported on the Form 990.
20) The Charleston Principles provide guidance to state governments in setting registration
requirements for not-for-profits wanting to raise funds over the Internet.
21) A not-for-profit typically has gross receipts of $4,500 or less each year. According to the IRS it
would not have to file with the IRS to be considered tax-exempt under Sec. 501(c)(3).
22) A large not-for-profit organization expended $1,250,000 in direct lobbying during the current
year. As long as the $1,250,000 did not exceed 2 percent of the organization’s gross receipts, the
amount is allowable according to the Internal Revenue Code.
23) Income, a not-for-profit organization, earns from a rental property on which it has a mortgage
is subject to unrelated business income tax.
24) A disqualified person is a person who has violated and been sanctioned under the Internal
Revenue Code.
25) A program effectiveness ratio is helpful in assessing whether a not-for-profit is using its
resources to accomplish its mission or goals.
26) The lack of defined ownership for not-for-profit organizations creates control and reporting
problems for not-for-profit managers.
27) The success of a not-for-profit organization is measured primarily by the amount of profits
generated by the organization’s activities.
28) Not-for-profit organizations are required to file audited financial statements with all states in
which they solicit contributions.
29) Which of the following is not a true statement about tax-exempt organizations?
A) They must be organized to serve the charitable needs of the public at large.
B) They must first become a not-for-profit corporation or charitable trust.
C) They are permitted to do some political lobbying if guidelines are met.
D) Their unrelated business income is taxed at corporate income tax rates.
30) A nongovernmental tax-exempt organization must complete a Form 990 and send it to the
Internal Revenue Service:
A) Only if they have unrelated business income.
B) If they are not a religious organization, and have gross receipts of $5,000 or more each year.
C) If they have gross receipts of $1,000 or more each year.
D) Only if they are a private foundation, not a public charity.