When is a flying club operating as a commercial operation?

[Clip4]

Did I miss it? Is this a worry of taxes or FAA and the 100hr? Wait for the next edition of the Master Tax Guide then consider a Not For Profit option. If a single hour of instruction is given why not drum up more from the surrounding community pool?
And/Or
As a layman I'd consider a 0.001 fraction to be equity and could be comfortably covered by an initiation fee. Charge the newer minority owners higher rates with a possible yearly disbursement back to the principals Or at least super cheap flying.

The ownership of the club aircraft must be vested in the name of the flying club or owned by all its members. The property rights of the members of the club shall be equal; no part of the net earnings of the club will inure to the benefit of any individual in any form, including salaries, bonuses, etc. The flying club may not derive greater revenue from the use of its aircraft than the amount needed for the operation, maintenance, and replacement of its aircraft. FAA Order 5190.6B at para. 10(6)(b)

The issue is airport use. A club derives advantages at public use airports over for profit operations.

 

[airdale]

What is the concern? They can be a club or be a rental company owned by 10 people. There's only a few changes between the two.

Maybe, maybe not. States' regulating of clubs varies widely as do the tax consequences by type of business.

 

[bflynn]

A club derives advantages at public use airports over for profit operations.

I'm confused by this statement. What advantage does a club have over for profit operations? If you're talking about lower costs and no profit -> lower prices, that isn't an airport thing, they are IRS and FAA things.

 

[Clip4]

I'm confused by this statement. What advantage does a club have over for profit operations? If you're talking about lower costs and no profit -> lower prices, that isn't an airport thing, they are IRS and FAA things.

Flying clubs at FAA obligated airports are not subject to fees, rules or insurance requirements that commercial operations are subject to.


As an example, if you want to operate a for profit flight school at an FAA obligated airport, the airport may require you to provide a substantial liability policy ($5 million) with the airport as an insured. The airport may also require a percentage of your gross receipts (5%) as an airport fee. The airport may refuse to rent you the GA T hangars and require you to rent a commercial hangar and office space.

A non-profit club is not subject to any of that under FAA orders. The club is a just like any aircraft owner not engaging in commercial activity at the airport.

 

[bradg33]

A non-profit club is not subject to any of that under FAA orders. The club is a just like any aircraft owner not engaging in commercial activity at the airport.

As it should be. A true flying club isn't actually competing with the flight schools or FBOs anymore than individual owners are. That said, there are plenty of truly commercial, for-profit operations that (attempt to) operate as disguised "flying clubs."

 

[bflynn]

Flying clubs at FAA obligated airports are not subject to fees, rules or insurance requirements that commercial operations are subject to.

And you think it's impossible to figure out who is running a commercial for profit rental organization? Won't the advertising give it away?

It increasingly sounds to me like the complaint is that non profit clubs are too much competition for commercial rental organizations. But they aren't owed the right to be competitive.

 

[Clip4]

And you think it's impossible to figure out who is running a commercial for profit rental organization? Won't the advertising give it away?

No, I don’t think it is impossible at all. It starts with the club being chartered as a non-profit under state and federal law.

If there is a doubt, the airport simply declares the club a commercial operation and the club has to demonstrate they aren’t. That would involve providing the books bank records.

 

[Clip4]

As it should be. A true flying club isn't actually competing with the flight schools or FBOs anymore than individual owners are. That said, there are plenty of truly commercial, for-profit operations that (attempt to) operate as disguised "flying clubs."

The word club does not infer non-profit unless you believe Gym Club, Night Club, Supper Club, and Sam’s Club are masquerading as non-profit.

 

[bflynn]

If there is a doubt, the airport simply declares the club a commercial operation and the club has to demonstrate they aren’t. That would involve providing bank records.

Actually, it would involve paperwork from the IRS. Every non profit should have a letter from the IRS showing their status. A replacement is trivial to get, but does take some time.

If deeming them to be a for profit organization to harass yoru competition is the goal, you should just report them to the IRS directly them. Or not at all if you're afraid of potential liability in doing so.

 

[Robert Gee]

The ownership of the club aircraft must be vested in the name of the flying club or owned by all its members. The property rights of the members of the club shall be equal; no part of the net earnings of the club will inure to the benefit of any individual in any form, including salaries, bonuses, etc. The flying club may not derive greater revenue from the use of its aircraft than the amount needed for the operation, maintenance, and replacement of its aircraft. FAA Order 5190.6B at para. 10(6)(b)

The issue is airport use. A club derives advantages at public use airports over for profit operations.

Most of my schemes seem to have rules prohibiting them.

I was guessing from the 10K foot view and comparing to this "Club." https://www.plusoneflyers.org/ $130 initiation and $35mo dues for access to ~90 planes! I wish I were near something similar. I have a feeling they must a "club" in spirit and name but not really operationally as you cite above? I couldn't find a structure listed.
Anyone here a member there?

The flying club may not derive greater revenue from the use of its aircraft than the amount needed for the operation, maintenance, and replacement of its aircraft. FAA Order 5190.6B at para. 10(6)(b)
This would enable quite a large slush fund to accumulate.

 

[bradg33]

The word club does not infer non-profit unless you believe Gym Club, Night Club, Supper Club, and Sam’s Club are masquerading as non-profit.

True, but a real "equity" club (which is really just a big partnership) doesn't have a profit motive, because the only way it generates "income" is people using the planes, and the only people using the planes are the owners.

 

[Clip4]

True, but a real "equity" club (which is really just a big partnership) doesn't have a profit motive, because the only way it generates "income" is people using the planes, and the only people using the planes are the owners.

Not all non-profit flying clubs are equity clubs and members owning equity is not a requirement to operate a not for profit club. There are tons of flying clubs where the member equity is negative. The club does not have sufficient assets to pay out all the members because the club borrowed money.

 

[JimNtexas]

503(c7) is designed for country clubs. Your c7 is explicitly allowed to to operate a restaurant!

https://www.irs.gov/pub/irs-tege/eotopich90.pdf

It would be very situation dependent, but if the state didn't consider the club to be a nonprofit, then its federal 501(c)7 or similar nonprofit status would probably also be revoked. So now the accounting must be to federal tax standards with proper capital equipment depreciation for example …

 

[airdale]

503(c7) is designed for country clubs. Your c7 is explicitly allowed to to operate a restaurant

And your point is? The IRS letter says 503(c7). End of story.

 

[Albany Tom]

I'd be more likely to join a flying club if they cooked a burger for me. But they'd have to keep is secret, or the on field restaurant would get upset.

 

[SkyDog58]

FYI: From a maintenance point, renting aircraft doesn't trigger the 100hr requirement needed with "for hire" ops.

Correct. I am always amazed at the number of people in aviation, including some who run or own FBOs and flight schools, who do not seem to understand this. In fact, a place that I used to rent from would not rent me one of their planes once for a weekend trip as it was due for a 100 hour since it was also a flight school plane. They couldn’t do the inspection until the following Monday as their mechanics didn’t work weekends. Once I showed them what the regulation actually said and helped them understand it, they released the plane to me.

Once a plane that serves both as a flight school plane and a common rental comes due for a 100 hour, it can be rented out without limitation but must have the 100 hour complied with before the next time it is used in instruction.

All one has to do is read 91.409(b) with a bit of a critical eye to understand this.

 

[Clip4]

Correct. I am always amazed at the number of people in aviation, including some who run or own FBOs and flight schools, who do not seem to understand this. In fact, a place that I used to rent from would not rent me one of their planes once for a weekend trip as it was due for a 100 hour since it was also a flight school plane. They couldn’t do the inspection until the following Monday as their mechanics didn’t work weekends. Once I showed them what the regulation actually said and helped them understand it, they released the plane to me.

Once a plane that serves both as a flight school plane and a common rental comes due for a 100 hour, it can be rented out without limitation but must have the 100 hour complied with before the next time it is used in instruction.

All one has to do is read 91.409(b) with a bit of a critical eye to understand this.

The regs are minimum standards. Some FBO/Flight Schools have a 100 hr inspection policy for all rentals. You could explain all you want and they would not release the plane to you.

 

[Tarheelpilot]

The regs are minimum standards. Some FBO/Flight Schools have a 100 hr inspection policy for all rentals. You could explain all you want and they would not release the plane to you.

Yup and sometimes you could be dealing with someone that does not understand the regulations such as in the post you quoted. No way to know unless you ask.

 

[midlifeflyer]

Correct. I am always amazed at the number of people in aviation, including some who run or own FBOs and flight schools, who do not seem to understand this. In fact, a place that I used to rent from would not rent me one of their planes once for a weekend trip as it was due for a 100 hour since it was also a flight school plane. They couldn’t do the inspection until the following Monday as their mechanics didn’t work weekends. Once I showed them what the regulation actually said and helped them understand it, they released the plane to me.

Once a plane that serves both as a flight school plane and a common rental comes due for a 100 hour, it can be rented out without limitation but must have the 100 hour complied with before the next time it is used in instruction.

All one has to do is read 91.409(b) with a bit of a critical eye to understand this.

It might be misinterpretation but I think sometimes it's a matter of administrative efficiency - just easier and less prone to error to maintain compliance consistently by requiring 100 hour inspections. A SOP which, over time morphs into a belief that it's a "rule."

There have been flight schools which have tried to split the difference by segregating certain N numbers as "rental only" aircraft. I have no idea how successful they have been in the long run.

 

[Bell206]

All one has to do is read 91.409(b) with a bit of a critical eye to understand this.

Or one of a number of LOIs on the subject complete with real world examples. Seems a critical eye is lacking in some areas.

The regs are minimum standards. Some FBO/Flight Schools have a 100 hr inspection policy

Maybe thats true at some places but i know of some that have 100hr policies because the counter people lack basic math skills after a weekend of rentals. Even tried to show one owner he could hire a separate person with a masters in math just to handle aircraft scheduling with the money he saved on repetitive 100hr insp.

 

[bflynn]

The phrasing is weird - “an aircraft carrying any person (other than a crewmember) for hire”. Thank to my elementary school grammar teacher, I read this to understand that you cannot hire a person and then fly them in a plane with you unless there’s been a 100 hr inspection. I’m sure what is meant is “an aircraft for hire carrying any person other than a crew member”, right?

 

[Bell206]

I’m sure what is meant is “an aircraft for hire carrying any person other than a crew member”, right?

I believe in the context of Subpart E the original version is correct as in 91 its the relation of the people in the aircraft that triggers the 100 vs the status of the aircraft. In your "aircraft for hire" version this would include a rental aircraft which does not require a 100.

 

[SkyDog58]

It might be misinterpretation but I think sometimes it's a matter of administrative efficiency - just easier and less prone to error to maintain compliance consistently by requiring 100 hour inspections. A SOP which, over time morphs into a belief that it's a "rule."

There have been flight schools which have tried to split the difference by segregating certain N numbers as "rental only" aircraft. I have no idea how successful they have been in the long run.

For me, it’s not an issue with how a company divides up its aircraft into training/rental vs rental only. I do think having two separate fleets could be difficult to manage long term. However if you have a plane that hits its 100 hour mark and you cannot get it into the shop right away for whatever reason, I think it is a horrible business decision to pull it from the line entirely. Put it on the board as rental only and enforce that. It isn’t hard to do. Most likely it will only be in that status for a few days before getting it into the shop. In the meantime, you don’t lose the additional rental income and you keep customers happy. And if a student asks why they can’t use it for training during this timeframe, it would be a good teachable moment to help them understand that particular regulation.

 

[SkyDog58]

Or one of a number of LOIs on the subject complete with real world examples. Seems a critical eye is lacking in some areas.


Maybe thats true at some places but i know of some that have 100hr policies because the counter people lack basic math skills after a weekend of rentals. Even tried to show one owner he could hire a separate person with a masters in math just to handle aircraft scheduling with the money he saved on repetitive 100hr insp.

Lol. I think high school math skills would suffice.

 

[Brad W]

Let's say you start a flying club. To be a member and qualify for the club insurance you have to have equity in the airplane. So 10 guys buy a $100,000 182 & each invests $10,000.
Fine all looks legit to me.

But down the road the club decides to increase their revenue & find people wanting to rent their 182 but are either unable to "buy-in" or chose not to. The club then decides to sell monthly memberships for a few hundred dollars & rents the 182 to the new monthly member.

This smells like a commercial operation to me disguised as a club. I'm I wrong?

I have a club near me that's operating sort of like this...although it wasn't 10 guys bought the plane, as I recall it was one or two....
Their buy in is something like an $700 -$800 initiation + $700-$800 refundable "bond"...so call it $1500-$1600 buy in "equity".

and then something like $125/month "dues"...then there's an hourly tach rate that's something like ...maybe 75% of nearby flight school rental rates...so not really a lot of savings on the hourly rate especially if I'm not able to fly a lot
and this fixed rate structure doesn't smell like just covering ACTUAL operation expense. (I suppose it's paying off the purchase price + maintaining some predicted reserves cushion)

membership cap is 20 members per aircraft...when I looked at them they had only one but currently they have two. I really want to join because rentals are so expensive and they're mostly just beat up old birds.... Hard to get a read on how many of that large club group is in a similar situation to me...really only available to fly some weekends, or whatever.... I recon odds are pretty good the plane may not be available when I'd like
& if we say $1600 buy in x 20 members....not hardly enough money to "buy or own the airplane" as an equity partnership...so what is this?

I've never been lucky enough to have an attractive club anywhere near any of the places I've lived, although I have had an eye open for decades. This is the first club I've ever had access to. When I looked at this one it just smells like a business....and I never could get a bead on what it is that doesn't smell right. Are they trying to dodge 100 hour inspection requirements? make a profit? I just don't get it. It's just pretty much like an FBO rental agency.

In the end though, the big show stopper for me is locking into a monthly payment equal to short local rental, just to get the chance to maybe...IF the planes are free on the weekend when i can fly to rent them a little bit less $ than what I could get at a local flight school. No promise that the planes are ever going to be available to me, and with no serious hourly rate savings either....

I don't know...I'd be willing to pay 10x or even more for equity for a buy-in to get less competition to reserve and to pay something that smells more like just the straight operating expenses.

 

[airdale]

... When I looked at this one it just smells like a business ...

https://www.guidestar.org/ is a great resource for checking this kind of stuff out. They have a database of all US nonprofits (not churches) and for ones large enough to file tax returns you can download the returns. These show things like expense items, whether board and officers are getting paid, balance sheets showing reserves and debts, etc. You can search for the nonprofit without registering but to get the tax returns, there is a free registration option. I have been registered for years and have never had any spam or other inconvenience as a result.

If you have need to increase your blood pressure, you can download the AOPA tax return.

Re costs, the most common structure is for the dues to cover the fixed costs and the billed hours to cover the variable costs. This is a pretty good scheme in general but there can be inequities. For example, a retrac like a Saratoga is expensive to insure (fixed cost) but only some members can meet insurance requirements to fly it. So the other members subsidize their flying.

 

[Brad W]

interesting site. Doesn't say much though, in the case of the flying club near me anyway
only
GROSS RECEIPTS $43,457
ASSETS $71,936

Assets seems low. Perhpas one of the planes is a lease back or there's a big loan. I think I recall they told me when they had only the one, that some member or members bought the plane and the club was paying them back...

regardless, what you wrote about dues covering fixed costs and billed hours covering variable costs is where I'm fuzzy. Just seems like the hourly rate is more than the actual variable....but maybe it's not. I just don't have a good feel.
$125 tach for a PA-28-180
$150 tach for a C182T

 

[Albany Tom]

I think you guys were over thinking this about 2 pages ago.

 

[airdale]

Too bad they're too small to file a full 990. Income number is odd; that should be dues plus flying hours. Try subtracting out your estimate of dues and dividing by an average airplane rate to get an estimate of flown hours. Small number, I think. Why? Owners of leaseback airplanes flying them a lot/hence not readily available to club members? Assets look low, too. Normal accounting would report any loan as a balance sheet liability, so assets number would probably show the depreciated value of the airplane(s). So I'm thinking your leaseback theory is correct.

Hourly rates, assuming they are wet rates look reasonable. Once you start looking, there are lots of variable costs. Fuel, annual inspections, engine depreciation, tires, oil changes and routine maintenance, things that break like instruments, radios, etc. If that 182 has the G1000 there is big bucks there plus additional fuel consumption vs the Pa28s.

Regardless, if you have serious interest in the club you should simply ask to get a review and explanation of the P&L. Among other things, look for money in the bank adequate to support the engine overhaul schedule. You do not want to get hit with a special assessment if the members have flown the engine(s) down to TBO and have no reserves.

 

[JimNtexas]

And your point is? The IRS letter says 503(c7). End of story.

Don’t forget, a C7 club may not host bingo games.