Church issue, maybe

[Margaret]

A church has provided the space for weekly yoga classes led by a member. The member charged $5 each session. No payments were made to the church and the Education Department considered it an offering of that department to members. Only a few nonmembers ever attended as friends of members and there was no advertising or effort to compete with other yoga studios.
Member leading class is moving away and department wants to continue classes but they will be led by a nonmember charging the same amount, using the space and not paying for anything.
Questions include whether this is an unrelated business (not according to education department); is there a conflict/problem with nonmember earning money providing services within a nonprofit space; is anything reportable by the church if no money is paid for use of the space?
My research in Jody Blazek's "Tax Planning and Compliance..." and Hammar's "Church and Clergy Tax Guide" has yielded nothing definitive.
Any guidance would be appreciated, especially with cites.
Thanks much at this busy time!

[jerome]

Here is my 2 cents:

The church has no unrelated business income if the church gets no income from it.

Is there a problem with nonmember earning money providing services within a nonprofit space? Not if everyone keeps their mouth shut. However, what happens when someone gets hurt? Is the church’s insurance company going to cover the liability? What if a for profit yoga business claims unfair competition? Is the IRS going to cause the church problems and claim the church has unreported income? Is the church endangering its tax exemption status for property tax purposes because it lets for profit businesses operate on its premises rent free?

Why would the church want to put itself at risk for something it has no business doing?

If the church wants to get into the yoga class business, have everyone pay a fee that will be used to help starving kids in Central America. The teacher can get a cut out of the proceeds for his or her services. The church needs to be in control of its own facilities and all activities conducted within its walls. The board of directors ought to prohibit their members or nonmembers from running their own sideline businesses out of the church. Allowing members free access to the church for personal business ventures is not what a non-profit organization is authorized to do.

[Margaret]

Thanks so very much for putting into cogent sentences many of the thoughts I had rambling through my brain. I believe the potential liability issue may be most important due to the provider getting fees for service. I was also concerned about the property tax angle. I will share this well written (in my opinion) response with the church session and treasurer who broached the subject. I don't think specific cites are necessary with all these other issues!
Thanks again, Margaret

[Snaggletooth]

Example

Another good example could well be the Methodist Publishing House. Although the Methodist Church is non-profit, they began printing Sunday-school literature in Nashville a hundred years ago. Nashville was known as a printing capital before country music was popular.

Their writers began writing secular books as well as religious books, and at one time the Methodist Publishing House was printing and distributing books and literature in excess of their costs. Their large volume resulted in low-cost printing and as a result they attracted many publishing contracts.

I believe this would be an example of "non-related business profits."

Many very large non-profit organizations avoid profit by paying out large bonuses to their directors and spending money frantically when collections outstrip costs. Against the spirit but I don't see IRS doing much about it. After all, IRS does tax the income of the directors.