Question

The organization Shelter the Needy is completing its Form 990 and it is trying to determine if it has unrelated business income on which it must pay taxes. Which of the following would be subject to unrelated business income taxes?
A. The Shelter sold art work it had received as a donation.
B. Volunteers raised several thousand dollars in a marathon sponsored for the benefit of the Shelter.
C. The Shelter earned revenues from the self-service laundry facilities it provides for the benefit of tenants of its low-income temporary housing facilities.
D. None of the items listed would be subject to unrelated business income taxes.

Answer 1

Answer:

D) None of the items listed would be subject to unrelated business income taxes.

Explanation:

Since Shelter the Needy is a tax exempt organization it must file Form 990 and must include the financial information of the nonprofit. Depending on the organization's total income for the year, it must file Form 990 or it can file Forms 990 EZ  or 990 N, and if it is a foundation it must file Form 990 PF.

Any art work or other donations made to the nonprofit can be sold as long as the proceeds are used to keep the nonprofit operating. Nonprofits are also allowed to earn revenue from services that they provide as long as they are related to the organization's main activity and the proceeds are used for normal operations.