Exercise 23-12 (b) (LO. 3)

Pelion, Inc., a qualifying 501(c)(3) organization, incurs lobbying expenditures of $35,000 for the taxable year and grass roots expenditures of $5,000. Exempt purpose expenditures for the taxable year are $490,000. Pelion elects to be eligible to make lobbying expenditures on a limited basis. Click here to access Exhibit 23.2.

If an amount is zero, enter "0".

Therefore, Pelion is permitted to deduct $fill in the blank 1 of lobbying and grass roots expenditures and the election results in a tax liability of $fill in the blank 2.

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Most organizations that are appropriately classified as exempt organizations are exempt from Federal income tax. Four exceptions to this general statement exist, however. An exempt organization that engages in a prohibited transaction or is a so-called feeder organization is subject to tax. If the organization is classified as a private foundation, it may be partially subject to tax. Finally, an exempt organization is subject to tax on its unrelated business taxable income.

Exhibit 23.2

Calculation of Lobbying Nontaxable Amount

Exempt Purpose Expenditures	Lobbying Nontaxable Amount Is
Not over $500,000	20% of exempt purpose expenditures
Over $500,000 but not over $1 million	$100,000 +15% of the excess of exempt purpose expenditures over $500,000
Over $1 million but not over $1.5 million	$175,000 + 10% of the excess of exempt purpose expenditures over $1 million
Over $1.5 million	$225,000 + 5% of the excess of exempt purpose expenditures over $1.5 million