Club/Tax question

[Scrabo]

Friend of mine was offered an opening in a small 10 member flying club that is neither registered as 501c3 or 501c7. Should she be concerned about an tax issues further down the road. EAA has a great article on how to apply for the 501 status, looks like a reasonably easy process . What is her exposure?

 

[jrollf]

Is it actually a club, or really partners that are just sharing ownership of an airplane?

 

[Scrabo]

Is it actually a club, or really partners that are just sharing ownership of an airplane?

Club, members have no equity in the one aircraft ( a 172 I think)

 

[flyingron]

It's easy to "create" a 501(c) entity. I've been involved in the creation of several. The problem is operating one within the law. I can't see how an airplane rental flying club can operate as a (c)(3). A (c)(7) is more likely.

The question is what IS she trying to get out of it. While she can probably get a reasonable salary as a operating director, she can't pull profits out. How is the club getting access to this airplane? If the club is leasing it, that is one thing. If the club is intending to purchase it? Where is the money for that coming from? What do you expect to do with the plane on possible dissolution? She just can't take her plane and go home if she grows tired of operating the club.

 

[Jumpmaster]

So where is the charitable purpose for a 501(c)(3) in a flying club. Not likely to qualify under (c)(3). Might qualify under (c)(7) as a social club but so what. All you’re asking is whether the organization is exempt from federal income tax, and in the case of a (c)(3), whether donations make to the organization are tax deductible by the donor. If they are a qualified organization under (c)(3) or (c)(7), then they are exempt from paying federal taxes on excess revenues (revenues exceeds costs and expenses). But I don’t think I’ve ever heard of a flying club making any kind of profit or having excess revenue unless it’s privately owned and structure as a profit making venture, or perhaps where the members are trying to create excess revenue for the purpose of major repairs or acquisitions. Other tax issues such as state income tax, state property tax, etc. are governed under state and not federal laws. Many (c)(3) and I would assume some (c)(7) have executive directors and in a number of cases are paid positions. Doubt a club that size would generate enough to pay someone but who knows.

 

[Scrabo]

Thanks for all the replies, just sounds dubious

 

[midlifeflyer]

Thanks for all the replies, just sounds dubious

Which part? Some small flying clubs operate as (c)(7) social clubs. Others don't bother. Financial structure may be tight enough to have no reportable income or small enough that it doesn't mater to the members of the group. Without (preferably an accountant) knowing the specific legal and financial setup of the organization, it's impossible to tell whether there is any downstream tax liability.

 

[WDD]

I’d contact other clubs in the area and ask what they do.

Lots of questions your friend should ask. Property taxes, insurance, liability, rules - bylaws, future obligations, check out rules, etc. The club I joined has a good set of member rules, governing process, etc.

 

[flyingcheesehead]

There is no requirement for any particular corporate or tax structure for a flying club.

It *is* worth asking what that structure is and whether they pay taxes, and if you're going to be an equity member I would say it's a requirement. I know of one club that doesn't bother to file their taxes, and they're gonna get shut down someday when the IRS figures that out and takes their planes to pay all the penalties.

The equity club that I was involved in managing was a for-profit C corp. Nothing wrong with that, and it was actually financially advantageous to us during the time I was involved. Our plan was that if that situation changed to go for (c)(7) status but that was looking VERY far off.

Nothing sounds dubious in what you've posted, @Scrabo - Not saying it is a good situation, but nothing that you've specifically posted should scare her away. Her exposure, if it's not an equity club, is zero. Her exposure if it is an equity club that's a corporation would be limited to the amount of money she pays for the share. Her exposure if she decides to become the treasurer and they lack D&O insurance could be higher, but other than that she shouldn't have anything to worry about.

 

[Scrabo]

There is no requirement for any particular corporate or tax structure for a flying club.

It *is* worth asking what that structure is and whether they pay taxes, and if you're going to be an equity member I would say it's a requirement. I know of one club that doesn't bother to file their taxes, and they're gonna get shut down someday when the IRS figures that out and takes their planes to pay all the penalties.

The equity club that I was involved in managing was a for-profit C corp. Nothing wrong with that, and it was actually financially advantageous to us during the time I was involved. Our plan was that if that situation changed to go for (c)(7) status but that was looking VERY far off.

Nothing sounds dubious in what you've posted, @Scrabo - Not saying it is a good situation, but nothing that you've specifically posted should scare her away. Her exposure, if it's not an equity club, is zero. Her exposure if it is an equity club that's a corporation would be limited to the amount of money she pays for the share. Her exposure if she decides to become the treasurer and they lack D&O insurance could be higher, but other than that she shouldn't have anything to worry about.

Thanks - that makes sense. I will pass it on.