February 26, 1998 | Read Time: 2 minutes
A fitness center owned and controlled by two non-profit hospitals will keep its tax exemption and avoid income tax on its operations, the I.R.S. has ruled.
The center — which has lap and therapeutic pools, aerobic track areas, and exercise equipment — has a physical-fitness club that competes with commercial health clubs. The center also rents part of its space to one of the hospitals for rehabilitation therapy and part to charities for special rehabilitation classes.
Seventy per cent of the center’s use is by the public on a membership or daily-use basis, and the two parent hospitals give money to the fitness facility to help cover its expenses.
In its ruling, the I.R.S. noted that under certain circumstances, organizations that run health clubs can qualify as charities even if they appear to be similar to commercial health clubs. The fitness center under review passed the test, the government said, in part because it makes significant space available for rehabilitation efforts, an act that “accomplishes the exempt purposes” of both the center and the hospitals that own it. Also in its favor: The center’s physical-fitness club provides “a neighborhood or public recreational facility” and is open to the general public at reasonable fees, the I.R.S. said.
The facility is not operated in a commercial manner, the I.R.S. continued, in part because it “has made no effort to increase the size of its facilities in order to attract new members and has not reduced the extent of charitable usage or access.”
The I.R.S. also concluded that the fitness center did not owe unrelated-business income tax — or UBIT — that charities must pay on income from a business that is not related to their missions. The reason: All payments received by the health facility are used to advance the center’s charitable purposes (Technical Advice Memorandum 9803001).
