LO.5 Sunset, Inc., a § 501(c)(3) exempt organization that is classified as a private foundation, generates investment income of $600,000 for the current tax year. This amount represents 20% of Sunset’s total income.

a. What type of tax is imposed on Sunset associated with its investment income?

b. Is the receipt of this investment income likely to result in Sunset losing its exempt status?

Why or why not?

c. Would your answers in

(a) and

(b) change if the $600,000 represented greater than 50% of Sunset’s total income? Explain.