Like individuals, flying clubs have a responsibility to Uncle Sam when it comes to federal income taxes. It's a good idea for club members, particularly club officers, to be aware of how the tax structure applies to incorporated flying clubs. But unless those officers are professionals who deal regularly with taxation, it is a good idea to seek assistance from a qualified accountant or attorney, whether for federal, state, or local tax purposes. It's imperative that clubs keep their group tax matters separate from any tax problems that individual members might have.
Except as noted below, every incorporated flying club is responsible for filing a federal income tax return whether or not it earns a taxable income and whether or not any tax is due on that income. In some cases, a club may be required to file a separate Schedule D (Gains and Losses from Sales or Exchanges of Property) along with its regular income tax return. A qualified accountant or tax attorney should be consulted on any major financial transaction undertaken during the year.
There are opportunities for clubs to become exempt from filing a federal income tax return. An exemption may be granted when a club is "organized and operated exclusively for pleasure, recreation, and other nonprofit purposes." The Internal Revenue Service has ruled that to qualify for exempt status a flying club must have an organized social program with the social activities being promoted through club funds. Programs can be set up on a "pay-as-you-go" basis with members paying for the events at the time they take place as long as all funds go through the club and are reflected in its financial records.
Non-profit status does not automatically exempt a club from submitting a federal income tax return. The club must specifically apply for an exemption on a special form that is submitted to the district director of the Internal Revenue Service for the district in which the club's principal office is located. Once a club is granted exempt status, it need only file annual information returns.
The local IRS office can supply clubs with all the information and forms they need to comply with existing tax regulations.
More information is available in AOPA's Guide to Taxes: Income, Personal Property, Sales and Use, or by calling AOPA, 1-800-USA-AOPA.
Flying clubs should do their best to take full advantage of existing federal income tax laws. Depending on their organizational form and purpose, many clubs can be granted nonprofit status and enjoy the exemption from having to file annual federal income tax returns. Nonprofit status is not automatically granted; it must be specifically requested. If it is granted, a club may need only to file an annual information return, and not a federal income tax return. Regular consultation with competent tax counsel is highly recommended.
Updated October, 2011
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