5.3.1 Basic Quiz -- Excess Business Holdings

If a private foundation owns a trade or business producing more than 3% active income, the foundation is subject to the excess business holdings rule.

True False

If a private foundation violates the excess business holdings rule, a 10% penalty tax is imposed on all of the private foundation's assets.

True False

The excess business holdings rule does not apply to charitable remainder trusts (CRTs).

True False

If a 10% penalty is imposed on a private foundation with excess business holdings and the foundation does not divest itself of the excess holding amount by the end of the taxable year in which the 5% tax was imposed, an additional 200% tax is imposed.

True False

Rocky, a board member and substantial contributor to the private foundation the Flying Squirrels Rescue, contributes 15% of his 50% interest in Frostbite Falls, a corporation. Flying Squirrels Rescue will be subject to a 10% penalty imposed on it for the 15% ownership.

True False

A private foundation may conduct a business where more than 5% of the earnings are from active trades or businesses and not be subject to the excess business holdings rule if the trade or business is substantially related to the foundation?s exempt purpose.

True False

If 2% or less of a trade or business is transferred to a private foundation or a CRT, the excess business holdings rules do not apply.

True False

The purpose of the excess business holdings rule is to protect donors from unscrupulous solicitations by private foundations.

True False

Linus owns 34% of a blanket making business. Lucy controls the business and owns 60% of the stock. Linus is a substantial contributor to the Beds for Beagles private foundation. Linus contributes his entire interest in the blanket making business to Beds for Beagles. Beds for Beagles is not subject to the excess business holdings rule.

True False

The excess business holdings rule does not apply to businesses with passive income.