Question

Garden, Inc. a qualifying 501c3 organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under section 501h to make lobbying expenditues on a limited basis, its tax liability resulting from the lobbying expenditure is:A. $0B. $12,500C. $50,000D.$60,000

Answer 1

If Garden, Inc. makes the election under section 501(h) to make limited lobbying expenditures, its tax liability resulting from the lobbying expenditure is $0.

Step-by-step explanation:

If Garden, Inc. makes the election under section 501h to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditure is $0 (Option A). This is because under section 501h, certain exempt purpose expenditures are allowed, and tax liability is determined based on a sliding scale based on the amount of lobbying expenditures made. In this case, since the lobbying expenditures are within the limit allowed by section 501h and exempt purpose expenditures are higher, the tax liability is $0.

Answer 2

If Garden, Inc. makes the election under section 501h to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditure would be $0. Garden, Inc.'s lobbying nontaxable amount would be $240,000 based on its exempt purpose expenditures, but since its lobbying expenditures are $210,000 which is lower than the lobbying nontaxable amount, its tax liability is $0.

Step-by-step explanation:

If Garden, Inc. makes the election under section 501h to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditure would be $0.

When a qualifying 501c3 organization makes the election under section 501h, it calculates its lobbying nontaxable amount based on its exempt purpose expenditures. In this case, Garden, Inc. has exempt purpose expenditures of $900,000. The lobbying nontaxable amount is calculated as 25% of the first $500,000 of exempt purpose expenditures plus 5% of the excess over $500,000. So, the lobbying nontaxable amount for Garden, Inc. would be $240,000 (25% of $500,000 plus 5% of $400,000).

Since the lobbying expenditures of $210,000 are below the lobbying nontaxable amount of $240,000, Garden, Inc.'s tax liability resulting from the lobbying expenditure would be $0.