Convert from Corp to Flying Club

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Painter1

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Mike K
Several of us own shares of a general business corporation whose sole asset is an airplane that we fly. We function exactly like a flying club but decades ago we were organized as a for-profit business.As engine reserves build, they become taxable income via K1's to each shareholder. Not ideal.

I have read the IRS guidelines and see that we would certainly qualify as a non-profit "social organization" flying club.

I would welcome advice and experience of anyone who has knowledge of making the conversion.
 
That sounds confusing. The 172 I fly is held under an LLC as the sole asset and we claim 0 income, 0 loss.
 
OkieAviator said:
That sounds confusing. The 172 I fly is held under an LLC as the sole asset and we claim 0 income, 0 loss.
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Same here. As I understand it, members' transactions with the LLC are disregarded. So if the only way the LLC gets any money is from members paying into maintenance reserves or contributing for fixed expenses, the LLC has no "income." With no income, there's no need to depreciate anything or claim any losses. We file as o income, 0 loss, and issue K1s to that effect to each member. That's not legal or tax advice to anyone, just an explanation of how we handle it (right or wrong, I suppose).
 
Not a CPA< but I don't think that's taxable income, it's capital infusion.
 
paflyer said:
Not a CPA< but I don't think that's taxable income, it's capital infusion.
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I do record them on our books as monthly and hourly "contributions," FWIW.
 
What you're asking about is a 501(c)7. What you really need to do before anything else is find a good accountant who understands how your group is currently set up as per IRS rules. They can give you more advice on the conversion and if it's good idea or not. I've been working thru this with a small group in Colorado and it's both very simple and a real PITA at the same time. The corp must be dissolved, the 501(c)7 created, and so on.
 
Joshuajayg said:
Do you depreciate the aircraft equal to the money you put away for the engine?
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We don't put money away. Basically we split all reoccurring costs and maintenance 4 ways and really the only rule is fill the plane up when you're done.

Regards to engine overhaul the way its handled per the operating agreement is come time we'll split the costs accordingly to the hours records by each pilots hours. We record tach in a little aircraft log. No what if someone sells their share you ask? Well in that case they will give up to $10 per tach hour to the other 3 owners.
 
Ours is not an LLC but a Sub S Corp on a cash basis accounting system established decades ago. Depreciation and capital infusions are products of accrual accounting basis; certainly not the goal.

I'm thinking that I can just create the 501(c)7 "club" and sell the asset from the Corp to the Club and dissolve the Corp ?? Anybody done that?
 
Careful with transactions between related parties. I think you may need to talk with a CPA (besides me). Sounds like you should have been accounting for a lot of these things as equity transactions. Even if you sell the plane to a different entity, the gain would be taxable to the s-corp shareholders. Also not ideal.

The per tach hour buyout is also problematic in that it could be considered selling the shares of the s-corp.

There are ways to fix this that could give you all taxable losses to fix the problem. Again, talk to a CPA that has experience with s-corp returns. This isn't really an aviation question, but a tax and accounting question, so specific aviation industry experience isn't required.
 
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