Faith Church, a § 501(c)(3) organization, operates a bingo game two times each week to raise money to support the youth activities of the church. For the current year, net proceeds from the bingo game are $900,000.
a.?
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where for-profit bingo games are illegal and where the bingo game is legal for exempt entities.
b.?
Determine the tax consequences for Faith Church if the bingo game is conducted in a jurisdiction where bingo games are legal for both for-profit and exempt entities.
What will be an ideal response?
| a. | In this case, the $900,000 is exempt from Federal income taxation because both of the following requirements are satisfied. | |
| ? | The bingo game is legal under both state and local law. | |
| ? | Commercial bingo games (conducted for a profit motive) ordinarily are not permitted in the jurisdiction. | |
| b. | In this case, the Federal income tax liability to Faith Church is $189,000 ($900,000 × 21%). | |
| Since commercial bingo games are permitted in the jurisdiction, the proceeds of $900,000 from the bingo game sponsored by Faith Church are subject to Federal income taxation as unrelated business income. | ||
Business
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