ExpertMedium1 markMultiple Choice
CPA · Question 45 · Area II: Entity Tax Compliance
A §501(c)(3) tax-exempt hospital operates a gift shop (staffed by volunteers) and a public cafeteria (staffed by paid employees). Which activity generates Unrelated Business Income (UBI)?
A §501(c)(3) tax-exempt hospital operates a gift shop (staffed by volunteers) and a public cafeteria (staffed by paid employees). Which activity generates Unrelated Business Income (UBI)?
Answer options:
A.
Gift Shop only
B.
Cafeteria only (if not primarily for convenience of staff/patients)
C.
Both Gift Shop and Cafeteria
D.
Neither
How to approach this question
Check exceptions. Volunteer labor = Exempt. Convenience of members = Exempt. Regular trade/business = Taxable.
Full Answer
B.Cafeteria only (if not primarily for convenience of staff/patients)✓ Correct
IRC §513(a). <br/>Gift Shop: Exempt because substantially all work is performed by volunteers (§513(a)(1)). <br/>Cafeteria: If open to public and not just for convenience of patients/employees, it is a trade or business regularly carried on and taxable.
Common mistakes
Assuming all income of a non-profit is exempt.
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