| IHRSA Report | In Brief


Tax-Exempt Competition Deals With New Precedent


substantive issues regarding accountability, charitable obligations, and community impact are drowned in a sea of skepticism. But, of course, club owners aren’t the only people sounding an alarm for more


I


accountability for tax-exempt organizations. On May 26, 2005, David Walker, the Comptroller General of the United States,


delivered a stark message to Members of Congress attending a hearing of the Committee on Ways and Means. “Current tax policy lacks specific criteria with respect to tax exemptions for charitable entities and detail on how that tax exemption is conferred,” he said. With the proper criteria, he argued, standards could be developed to hold tax-exempt organizations “accountable for providing services and benefits to the public commensurate with their favored tax status.” His testimony solidified what many had long suspected: tax-exempt organizations


were operating without accountability because the government simply lacked the necessary enforcement tools. The hearing, however, was not focused on tax-exempt fitness centers. Rather, it addressed tax-exempt hospitals—a group annually generating an enormous amount of nontaxable revenue. Five years later, a relatively short time in the byzantine


world of Congress, a little-noticed provision of the Patient Protection and Affordable Care Act (a.k.a. the healthcare bill) took the first step toward more accountability for tax- exempt hospitals. The bill highlights include a requirement that hospitals


must perform regular community needs assessments and establish a widely publicized financial assistance program; a mandate that the IRS review the tax-exemption of a tax- exempt hospital every three years; and a requirement that Treasury and HHS submit an annual report on the level of charity care provided by tax-exempt hospitals. In response to the new provisions, Senator Chuck Grassley (R-IA), who fought to include the accountability provisions,


noted that “the Government Accountability Office and others, including the former IRS commissioner, have said for a long time that there is often no discernible difference between the operations of taxable and tax-exempt hospitals… The provisions take steps to differentiate tax-exempt hospitals from for-profit hospitals and provide further transparency about tax-exempt hospitals’ fulfilling their char- itable mission.” Just a week before the healthcare bill passed, the Supreme Court of Illinois


sounded a similar note when it revoked a tax-exemption from a nonprofit hospital in Illinois. “As a practical matter, there was little to distinguish the way in which [the hospital] dispensed its ‘charity’ from the way in which a for-profit institution would write off bad debt,” noted the court’s opinion. The recent progress toward holding tax-exempt hospitals accountable to their


charitable obligations is no small matter to the fitness industry. It establishes a precedential path for the fitness industry to follow. For example, the ruling by the Supreme Court of Illinois, though focused on the characteristics of a tax-exempt hospital, furthered several legal principles relating to charitable institutions that may be applied within an analysis of whether a particular tax-exempt fitness center is eligible for a tax exemption. —|


.org 120 Club Business Internat ional | FEBRUARY 2011 |


t’s not easy to explain to people outside the industry that a tax-exempt fitness center may be hurting the community. Their first reaction is typically shock, followed by skepticism. For example, “How can anyone be against the Y? Oh, I know why—you’re just worried about competition.” Club owners are dismissed as self-interested, regardless of the facts. The


Be sure to attend the Tax-Exempt Competition Forum on Wednesday, March 16, during IHRSA’s International Convention and Trade Show. For information: www.ihrsa.org/convention.


www. ihrsa.org


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146