News from HQ: When Enough is Enough!

They say the definition of insanity is doing the same thing over and over again while expecting a different result. Does your flying club fit this definition? In the March edition of Club Connector, we will look at ways your club can come back from the brink. It may require some uncomfortable conversations and significant changes, but your club can pull through. We will visit with a club who has “been there” and had to regroup to be successful. Be sure to give our Question of the Month a read for guidance on keeping your club operating successfully.

Thank you for your continued readership of this newsletter. We really enjoy bringing you the latest flying clubs news!

Attention Club Treasurers:  New Federal Reporting Requirements for Aircraft Ownership Entities

By Steve Bateman.

Some of you may have heard about the new “FinCEN’s Beneficial Ownership Information Rule”, that came into being in September 2022.  The rule essentially requires all corporations, LLCs and other legal entities to file a (new) report containing “Beneficial Ownership Information (BOI)” to the Financial Crimes Enforcement Agency (part of the department of the Treasury). 

So…you are now wondering…does this apply to my flying club?  Well, it might.

We’ll provide links to the Final Rule a bit later, but to save you the hassle of ploughing through 99-pages of shear reading enjoyment, this is how we believe flying clubs may be impacted:

  1. Clubs formed as LLCs.Reporting will be required.
  2. Club formed as corporations (non-profit or otherwise).Reporting will be required.
  3. Clubs formed as non-profit corporations AND have received a letter of determination from the IRS granting tax exemption under 501(c).Reporting will not be required.

As regular readers know well, for many years we have been advising that flying clubs should establish as non-profit corporations in their state of operations.  We base this on the following: 

Firstly, the very definition of a flying club according to the FAA is: “FAA defines a flying club as a nonprofit or not-for-profit…”.  Since LLCs are (required are to be) profit-making entities, this is clearly a problem.  We further advise that flying clubs organized as LLCs should exercise the option of converting to a non-profit corporation—see your state’s Business Portal for more information on how to do that, and/or consult with a business lawyer.

Secondly, clubs formed as LLCs are very likely missing out on the opportunity of federal (and oftentimes, state) exemption from income tax, under the IRS code 501(c)(7).  That means more of your “reserves” will be available for overhauls, upgrades, etc.   In our opinion, there is just no way that an LLC flying club can claim to be a non-profit social/hobby club, and, as we have stated many times before, there is no way that a true flying club can ever claim to be an educational charity in order to receive exemption under 501(c)(3)…it just doesn’t compute.

So, given point number 3 above—that non-profit flying clubs holding formal 510(c)(7) exemption will not be required to provide the BOI report—then this is yet another reason why all flying clubs should form as non-profit entities and not as LLCs…and don’t let an uninformed lawyer try to tell you differently!

Note that we are talking about clubs that have filed IRS form 1024 and have received a letter of determination approving the tax-exempt status.  Now, we have heard that some clubs are filing form 990 (rather than form 1120) to “self-declare” that they are operating under the rules of 501(c)(7), rather than using form 1024, so avoid paying the $600 one time filing fee.  Not only is this risky practice (always get approval letters from the IRS), but this now will not relieve such clubs from the new filing requirements.

To date, there are no details about the actual reporting methods or forms, but we will let we know when we know more.  Please do not email the flying clubs team or AOPA lawyers about this at this time.  We simply do not have any more details.

For more interesting background see AOPA lawyer’s Ian Arendt’s article here, that contains links to the actual ruling.


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