Q: I am currently the owner and clinical director of Shoreline Center for Eating Disorder Treatment. I want to provide scholarships for "Satori House," my extended care residential care home, for those in recovery from anorexia nervosa or bulimia nervose who would not otherwise be able to provide this type of care.

I want to continue the for profit business, but add an "arm" that can fundraise and award scholarships. I am trying to determine if I have to create a non-profit or if there is a way I can do this without doing all that.

Any thoughts on combinding non and for profit business would be apppreciated.
 

Patrick O'Heffernan responds:

While I cannot give you legal advice and I  suggest you do consult a lawyer, forming a non profit corporation will depend on what you want to do.. 

Do you plan to raise money?  If you plan to raise money for the scholarships and then give it to recipients, you will need a NPO so your donors can take the tax deduction.  However, if the NPO pays the for-profit for the services, that payment is taxable income to the for-profit.  There is no deduction for you, just for your donors.

Do you plan to provide free facilities? If you plan to just provide facilities for free and call it a scholarship, you don't need a NPO. I cannot advise you on the tax deductibility of providing a free service at a for-profit firm, but I assume that the cost of providing the service will already be deducted from your overall income.  Check with an attorney.

Do you intend to donate cash to the scholarship fund?  If so, the scholarship fund needs to be a NPO so you can deduct the donation from your income (or the firm's income if the firm does the donating).  However, check with an attorney because the IRS may object to your donating tax deductible money to a fund that pays it back to you.

If you do have to set up a NPO, DON'T pay an attorney thousands of dollars to do it.  Check the seminars at the Foundation Center and Nolo Press on how to do it yourself or with minimum legal cost.