This attorney is licensed in New Jersey and 1 other state.
Posted about 1 year ago.
Flag as objectionable
I have an LL.M. in tax and I used to work for the Exempt Organizations (EO) division of the IRS. Question 1: "Permitted use" is a zoning term and not a tax term but I take your question to be whether running a space renatal business is "allowable function" of and exempt org (ExO). There is nothing per se wrong with an ExO running any kind of business. However, if the business activity is not related to its "charitable mission" or organizational charter then it must pay the Unrelated Business Income Tax (UBIT) on those profits. The standard example of function which does not raise UBIT issues is a museum selling simulated artifacts or copies of paintings on display in the museum in its gift shop. Selling parking spaces to visit the museum usually would be a taxable function, however. So it would seem pretty clear to me that the women's club owes the UBIT on this activity. Also, social clubs have much more restrictive rules than "public charities" (or even "private foundations") and I suspect their ablity to operate a business is severely restricted. I'd be happy to do that research for you if you wish (for a fee) -- I did charity work at the IRS not club work (one gentleman who has worked at the IRS since before I was born is the house expert on clubs).
Question 2: OK, I know very little about zoning but you have to go look at the city zoning map and see if the area is zoned commercial. If it is, sometimes storage rental is a use that is restricted even in a commercial zone. If space rental is a permitted use, I do not think you can make a zoning argument although perhaps they did not properly inform the city of a "change in use."
I think this club probably knows it is skating on thin ice from several perspectives and it would surprise me if they did not address your concerns rather than risk an investigation by a government entity of some type.
This is answer is just based on general legal principles and is not legal advice and was not intended to create an attorney client relationship. It is intended merely to educate the public about a possible answer to a hypothetical legal question.
