Flying club q’s

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BT573

Filing Flight Plan
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Sep 20, 2024
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BT573
Someone please QC me.

I am looking to buy a 150 and Mooney. Both would be placed into an LLC.

Next I am looking to start a non-equity flying club under another LLC.

I would then lease the two airplanes into the flying club. Club members would be non-equity members.

Does the LLC that holds the aircraft need insurance or does the club LLC hold insurance. I am guessing it would be a commercial policy.

Next, myself and a couple others are CFIs that will be instructing in the club. From what I am seeing, we are cleared to charge a CFI rate for instruction and the student must be a club member and rent from the club.

Next I am also looking to travel for business. I would pay the club rental rate and then expense that receipt as travel for a consulting LLC I have.

I know I know I am asking for keyboard warriors. But tell me the good and bad. Tell me I’ve got it right or going to get Tboned by the IRS or FAA. And please try and give some fixes.

Yes my next step is CPA and lawyer advice.
 
If I understand correctly, if this club limits who can teach in its aircraft then you’re going to be subject to 91.409(b) 100 hr inspections. You’d have a scenario where the club is providing both the plane and the instructor.

If the student can choose their own CFI (whether or not that CFI is also a member of the club) then 100hr inspections wouldn’t apply.


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TCABM said:
Why two LLCs?
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Separation of ownership of the aircraft from operation of the club. Essentially, the owner LLC will lease the airplane to the club. Not an uncommon business arrangement. In the flying club situation, it can avoid potential problems with with the disposition of assets when the club ceases operation.

Either someone received professional advice or someone read it somewhere on the internet and decided to do it without understanding it.
 
dans2992 said:
“Non-equity flying club…”.

So, aircraft rental, basically.
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Sort of. From the pilot standpoint, for day-to-day ops it doesn't look that different than rental (most equity arrangements don't either). From the club standpoint, it's typically a 501(c)(7) social club with nonprofit tax benefits. With a well-run club, there's often a psychological pilot buy-in you don't often see with rentals - the members takes care of the airplanes and don't trash them.
 
BT573 said:
Yes my next step is CPA and lawyer advice.
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Good.
BT573 said:
Does the LLC that holds the aircraft need insurance or does the club LLC hold insurance. I am guessing it would be a commercial policy.
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The club - the entity operating the aircraft, arranging maintenance, qualifying pilots is the party (other than the pilot flying) which mostly needs the insurance, generally including the owner as an additonal insured (there are some states where the owner has at least presumptive liability even with no operational responsibility). But I've seen owners obtain their own separate policies. That's typically in a situation where the club is new and stuck with a bare bones $1 Million/$200K per seat policy and the owner wants and can afford $1 Million smooth.
 
midlifeflyer said:
Sort of. From the pilot standpoint, for day-to-day ops it doesn't look that different than rental (most equity arrangements don't either). From the club standpoint, it's typically a 501(c)(7) social club with nonprofit tax benefits. With a well-run club, there's often a psychological pilot buy-in you don't often see with rentals - the members takes care of the airplanes and don't trash them.
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So, non-equity can be a nonprofit? No sales tax? Interesting.

I know one advantage of equity clubs is also that “renters insurance” is not needed, because you’re an owner, not a renter.
 
dans2992 said:
So, non-equity can be a nonprofit? No sales tax? Interesting.

I know one advantage of equity clubs is also that “renters insurance” is not needed, because you’re an owner, not a renter.
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Sales tax exemptions for nonprofits vary from state to state, so that depends.

Insurance coverage and “need” for an individual pilot depends on policy availability and choice. I have known of social flying clubs and even for profit flight schools which cover the pilots as additional insureds. High smooth limits, limits on member/renter liability for hull damage. OTOH, if the equity club has a basic, bare bones policy, what’s the advantage to being an “owner”?
 
I think the point of a "not equity flying club" is to keep maintenance under Part 91?
 
Sac Arrow said:
I think the point of a "not equity flying club" is to keep maintenance under Part 91?
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Versus what, part 121 or 135? There are no maintenance differences between a "non-equity" flying club and an "equity" flying club. As a practical matter, the difference is irrelevant. In a typical "equity" flying club, the members are simply members of the LLC that owns the airplane(s); the members have no direct ownership interest in the planes. So they're still, legally, "renting" the airplanes from the LLC, whether it's actually documented that way or not.
 
bradg33 said:
Versus what, part 121 or 135? There are no maintenance differences between a "non-equity" flying club and an "equity" flying club. As a practical matter, the difference is irrelevant. In a typical "equity" flying club, the members are simply members of the LLC that owns the airplane(s); the members have no direct ownership interest in the planes. So they're still, legally, "renting" the airplanes from the LLC, whether it's actually documented that way or not.
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Right, but aren't "rental" planes operated under 135?
 
Sac Arrow said:
Right, but aren't "rental" planes operated under 135?
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No. Well, "rental" airplanes leased to a Part 135 operation are operated under part 135 and "rental" airplanes leased to a 121 operation are operated under Part 121. Etc. But nothing about an airplane being available for rent involves either.

Did you buy an airplane when you trained, or did go to a flight school where you rented the airplane? Do (did) you think it was a Part 135 operation?
 
crash7 said:
If I understand correctly, if this club limits who can teach in its aircraft then you’re going to be subject to 91.409(b) 100 hr inspections. You’d have a scenario where the club is providing both the plane and the instructor.

If the student can choose their own CFI (whether or not that CFI is also a member of the club) then 100hr inspections wouldn’t apply.


Sent from my iPhone using Tapatalk
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What you just posted does not apply to a for profit club when an owner of the LLC is providing instruction or when the LLC is providing any CFIs regardless of the students ability to use outside instructors.
 
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BT573 said:
Someone please QC me.

I am looking to buy a 150 and Mooney. Both would be placed into an LLC.

Next I am looking to start a non-equity flying club under another LLC.

I would then lease the two airplanes into the flying club. Club members would be non-equity members.

Does the LLC that holds the aircraft need insurance or does the club LLC hold insurance. I am guessing it would be a commercial policy.

Next, myself and a couple others are CFIs that will be instructing in the club. From what I am seeing, we are cleared to charge a CFI rate for instruction and the student must be a club member and rent from the club.

Next I am also looking to travel for business. I would pay the club rental rate and then expense that receipt as travel for a consulting LLC I have.

I know I know I am asking for keyboard warriors. But tell me the good and bad. Tell me I’ve got it right or going to get Tboned by the IRS or FAA. And please try and give some fixes.

Yes my next step is CPA and lawyer advice.
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You are worrying about insurance, the FAA and the IRS. I would concern myself with a solid business model first.
 
midlifeflyer said:
No. Well, "rental" airplanes leased to a Part 135 operation are operated under part 135 and "rental" airplanes leased to a 121 operation are operated under Part 121. Etc. But nothing about an airplane being available for rent involves either.

Did you buy an airplane when you trained, or did go to a flight school where you rented the airplane? Do (did) you think it was a Part 135 operation?
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Okay, I assumed that the 100 hour inspections were a Part 135 requirement. I see they apply to Part 91 also. I trained at a flight school.
 
crash7 said:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiyidSi7NmIAxW9mokEHY6EDKYQFnoECBYQAQ&url=https://www.aopa.org/~/media/Files/AOPA/Home/Flying%20Clubs/Website%20Documents/Do%20club%20aircraft%20require%20100-hour%20inspections&usg=AOvVaw1NTRCnxM7EIsg3I8ngFRkr&opi=89978449

https://www.pilotsofamerica.com/community/threads/100-hour-inspections-and-club-aircraft.63338/
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Maybe you care how to explain how a CFI who owns the LLC owning the aircraft is going to personally give flight instruction in those aircraft without 100 hour inspections? Once the LLC publishes a list of potential CFIs, they are recommending those CFIs and 100 hour inspections are required for flight instruction.

Another issue is non-profit flying clubs are required to be treated the same as an individual owners at an FAA sponsored airports. A for profit LLC may be required to meet all the requirements of a commercial business.
 
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I did not know that about non-profit flying clubs. (Ie required to be treated the same as individual owners) Interesting.

Is there precedent for this?
 
dans2992 said:
So, non-equity can be a nonprofit? No sales tax? Interesting.
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Nonprofit, yes. Charity, no. A charity, which you can make a tax-deductible donation to, is 501(c)(3). A flying club organized as a nonprofit would be a 501(c)(7) social organization.

Sales tax rules depend on what state you're in. Here in Wisconsin, our club avoided sales tax on the individual members' payments by paying sales tax on the airplanes when we bought them instead.
dans2992 said:
I know one advantage of equity clubs is also that “renters insurance” is not needed, because you’re an owner, not a renter.
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Not necessarily true. Just because you are an owner, does not mean you are insured.

Our club did insure its members, the named insured on the policy was "<flying club name>, Inc. and individual members thereof". But it's also possible to buy a policy that covers only the club and not its members, regardless of their status as owners. It's possible for a non-equity club to insure its individual members too.
 
crash7 said:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwiyidSi7NmIAxW9mokEHY6EDKYQFnoECBYQAQ&url=https://www.aopa.org/~/media/Files/AOPA/Home/Flying%20Clubs/Website%20Documents/Do%20club%20aircraft%20require%20100-hour%20inspections&usg=AOvVaw1NTRCnxM7EIsg3I8ngFRkr&opi=89978449

https://www.pilotsofamerica.com/community/threads/100-hour-inspections-and-club-aircraft.63338/

?
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100 hour inspections and flying clubs has an interesting history, with the FAA‘s position going in various directions. That 3-page small font treatment by AOPA is a good indication of its complexity. I know of clubs which don’t do them and clubs which do them as a matter of course for what they see as both regulatory and safety reasons.
 
dans2992 said:
I did not know that about non-profit flying clubs. (Ie required to be treated the same as individual owners) Interesting.

Is there precedent for this?
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As I recall, it’s discussed in FAA airport guidance materials. It’s not so much about a requirement to treat certain clubs as an individual as the opposite: a requirement to treat those that look like a business as a business.

It’s about the prohibition against discrimination. Take two hypothetical operations, one a club and one a for-profit rental. Both charge for aircraft use. Both provide lists of qualified instructors. To the outside observer, there’s no difference. But if the club is treated as an individual owner and not as a business, it would not have to meet airport standards for commercial operations, giving it a competitive advantage.
 
bradg33 said:
Versus what, part 121 or 135? There are no maintenance differences between a "non-equity" flying club and an "equity" flying club. As a practical matter, the difference is irrelevant. In a typical "equity" flying club, the members are simply members of the LLC that owns the airplane(s); the members have no direct ownership interest in the planes. So they're still, legally, "renting" the airplanes from the LLC, whether it's actually documented that way or not.
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Yes and no, it depends on the club structure. As presented by the OP, there's zero ownership and it's a rental.

If the club is an equity club then members are owners, even if their share is a nut on one of the main gear wheels. At that point they can contribute a usage cost to the club and it isn't a rental so there's no legal requirement for 50/100 maintenance. It's a subtle but important difference.

However, IMO any responsible club should be doing maintenance at 50/100 hours anyway.
 
Clip4 said:
Maybe you care how to explain how a CFI who owns the LLC owning the aircraft is going to personally give flight instruction in those aircraft without 100 hour inspections? Once the LLC publishes a list of potential CFIs, they are recommending those CFIs and 100 hour inspections are required for flight instruction.
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I originally posted that clubs may be subject to 100hr inspections depending on how they deal with CFIs. You responded with:
Clip4 said:
What you just posted does not apply to a for profit club when an owner of the LLC is providing instruction or when the LLC is providing any CFIs regardless of the students ability to use outside instructors.
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I took that to mean you didn't think clubs were subject to 100hr inspections. Now it sounds like you agree with me that they are? Sorry if this is a misunderstanding on my part.
 
bflynn said:
Yes and no, it depends on the club structure. As presented by the OP, there's zero ownership and it's a rental.

If the club is an equity club then members are owners, even if their share is a nut on one of the main gear wheels. At that point they can contribute a usage cost to the club and it isn't a rental so there's no legal requirement for 50/100 maintenance. It's a subtle but important difference.

However, IMO any responsible club should be doing maintenance at 50/100 hours anyway.
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Rental aircraft are not subject to 100hr inspections just because they are being used in a rental operation. The 100hr requirement is based entirely on how they manage flight instruction.

In an "equity" club, the members typically own an interest in an LLC that then owns an airplane. Well-established law in (likely) every state holds that LLC members do not have a direct ownership interest in LLC property (the airplane). It's a fine distinction that rarely actually matters in practice, but a legal distinction either way.
 
bradg33 said:
Rental aircraft are not subject to 100hr inspections just because they are being used in a rental operation. The 100hr requirement is based entirely on how they manage flight instruction.

In an "equity" club, the members typically own an interest in an LLC that then owns an airplane. Well-established law in (likely) every state holds that LLC members do not have a direct ownership interest in LLC property (the airplane). It's a fine distinction that rarely actually matters in practice, but a legal distinction either way.
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I'm assuming that there would have to be flight instruction. At the very least you'll have to do flight reviews to keep members current.

There are equity clubs where members are also aircraft owners.
 
bflynn said:
I'm assuming that there would have to be flight instruction. At the very least you'll have to do flight reviews to keep members current.

There are equity clubs where members are also aircraft owners.
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And how they manage that flight instruction dictates whether 100hr inspections are required or not.

The only equity clubs where the members are aircraft owners are where the airplane is co-registered in the club member's individual names (uncommon). If the airplane is owned by/registered to an LLC or a corp (inc.), the "members" do not legally have any direct ownership interest in the airplane.
 
Let us know what the lawyer and CPA advise you on... This subject pops up from time to time..
 
bflynn said:
I'm assuming that there would have to be flight instruction. At the very least you'll have to do flight reviews to keep members current.
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It's probably rare, but there is no requirement that a "club" have instructors. You see that all the time in aircraft co-ownership entities in which the members may use any instructor so long as they meet certain stated objective criteria. There's no reason, other than the club's chosen policies it can't apply there either.
 
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