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501 (c)3

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#1 cagw8956


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Posted 04 December 2012 - 07:22 PM

I have had my own fitness business since 2007. Individual owner with members. My question is i want to form a 501 ©3. What steps do i need to take. Do my business have to be a LLC, Corporation, etc. before I can form a 501 ©3. The only thing I have now is DBA state of TX. My goal is to form a non profit organization. I need some directions before I start purchasing all the different forms for Small Business.

#2 Tax_Counsel


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Posted 04 December 2012 - 11:33 PM

A regular fitness business won't qualify as tax exempt under Internal Revenue Code (IRC) section 501( c ) (3). In order to qualify, the organization must be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals.” Note, too, that you cannot financially benefit from the organization and qualify under § 501( c )(3). Depending on what you want to do, there might be some other type of tax exempt entity that might work (though donations to those other types of tax exempt organizations are not tax deductible). I suggest as a start that you read IRS publication 557, which provides a good overview of tax exempt organizations. After you read that if you still think you are interested in setting up a tax exempt organization, I suggest you see a tax attorney for advice and assistance. There are a lot of rules you need to know about if you are going to set up and operate a tax exempt organization, and the application for tax exempt status will go more smoothly if you have an experienced lawyer handle that for you.

#3 Guest_FindLaw_Amir_*

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Posted 05 December 2012 - 01:14 PM

I agree with the previous poster, this is a matter you may wish to consult with a local Texas Tax Lawyer to address.

#4 gymowner


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Posted 16 December 2012 - 12:22 PM

So, Could you explain the existence of 4 fitness centers owned by a non profit corporation. health first foundation owns
Health First fitness centers in Brevard county..

They are fitness centers owned and operated by Health First Foundation a non profit corp....

No different then a for profit..So , How do they get away with it?

And they are now trying to put the For profit gyms that pay sales tax out of business.
gym owner

#5 Tax_Counsel


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Posted 16 December 2012 - 08:06 PM

A couple of things to clear up. First, for federal tax law purposes, the the term nonprofit has no meaning. Instead the issue is whether it qualifies as tax exempt under Internal Revenue Code (IRC) section 501. Tax exempt organizations pay no federal income tax on their income. Regular businesses cannot qualify as tax exempt and thus pay tax on their income. Very generally speaking, those organizations that qualify as tax exempt under IRC § 501( c )(3) are either churches or organizations that provide a benefit to those in need, e.g. charities. (There are other types of organizations that qualify as a tax exempt, too, like fraternal organizations and social clubs, but donations to those organizations are not tax deductible like donations to § 501( c )(3) organizations.)

The term nonprofit corporation often does have a particular meaning under state law, however, and state laws on nonprofit corporations differ. A state may exempt from its income, sales, and/or property taxes federal tax exempt organizations and/or state law nonprofit corporations. Again, the details of those state tax exemptions vary by state.

With that background, there are two ways a fitness club might fit into a tax exempt organization. First, the fitness club might itself be a tax exempt organization under § 501( c )(3). In this case, the fitness club cannot be run for the profit of the owners/founders of the fitness club and must provide a benefit to those in need in the community. For example, it might provide its fitness services to low income persons for free or at greatly reduced rates subsidized by the fees paid by other members of the club. In short, instead of returning a profit to the owners, it instead breaks even by using its funds from full paying members to help out the poor and underserved members of the community. This is the kind of model the YMCA type of clubs use.

The second model is involves a large tax exempt organization that owns a regular fitness club in order to benefit its tax exemt activities. This is often done, for example, by large tax exempt hospital/medical groups. The fitness clubs generate revenue which then helps subsidize the free or low cost medical care the tax exempt hospital or medical practice provides to needy members of the community. Here, however, while the hospital or medical group is tax exempt, the income from the for profit fitness activity would still be subject to federal income tax, called “unrelated business income tax” (UBIT). This model allows tax exempt organizations a way to raise money for their charitable activities without losing the tax exemption, but yet ensure that the federal government gets paid the income tax that is due on the non-charitable business activity. There are limits to how much the tax exempt organization may raise this way and other rules to ensure that the focus of the organization is providing the charitable services and not focusing on running a business. My quick look at the Florida health organization you mentioned suggests that this is the model it is likely using.

From a federal tax law perspective, tax exempt organizations using the second model have no tax advantage over private fitness clubs because the organizations pay income tax on the income from the fitness club just like the private fitness club does.

Most states don’t impose sales tax on most services, like fitness club memberships. But a few do, and Florida may be one of them. That’s not surprising since Florida does not have an income tax like most states do, and thus Florida is more heavily reliant on sales tax revenue to fund government operations. It may be that Florida simply exempts all the activities done by a federal tax exempt organization without regard to whether that particular activity is actually subject to the UBIT. I’ve not researched Florida tax law to know.

I’m not sure how a Florida fitness club is problem for you when you are apparently in Texas. In any event, the bottom line is that you cannot get a regular for profit business to qualify as tax exempt under federal tax law.

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