Pros and Cons of a 501(c)(3) Operation

What are the Pros and Cons of a soaring club becoming
a 501(c)(3) operation? Our club has 25 members and
growing. We own 3 gliders and a Piper Pawnee. We rent
2 hangars at a public airport for our equipment.

Thanks for your time!

Randy Teel
Tulsa, OK

On Mar 6, 12:59*pm, Randy Teel wrote:
What are the Pros and Cons of a soaring club becoming
a 501(c)(3) operation? Our club has 25 members and
growing. We own 3 gliders and a Piper Pawnee. We rent
2 hangars at a public airport for our equipment.

Thanks for your time!

Randy Teel
Tulsa, OK

Randy: Go to WWW.IRS.Gov and download IRS publication 4220.
( Applying for 501(c)(3) Tax-Exempt Status). It is written in layman
and non technical terms. It will also assist you in determining the
general guidelines for organizations seeking tax exempt status as a
501 (c) (3).

Penn Smith

Having been commodore of a couple of yacht clubs I can say that
everyone thinks that becoming a 501c3 organisation will open the flood
gates for fundraising, that people will stand in line to give you
money because they will get a tax break. The reality is that when it
comes to raising funds sailing and soaring enthusiats don't generate
too much sympathy when it comes to raising money. In the meantime a
lot of effort needs to go into the application and there will also be
more effort every year in filling out the additional financial
reports. plus you come under additional government scrutiny. SO . . .
you've guessed it - in my opinion, unless you have someone who has
stated he/she will make a sizable donation to your oranization if it
is tax deductible then don't bother with it. Allan.

On Tuesday, March 6, 2012 7:22:03 PM UTC-7, Allan wrote:
Having been commodore of a couple of yacht clubs I can say that
everyone thinks that becoming a 501c3 organisation will open the flood
gates for fundraising, that people will stand in line to give you
money because they will get a tax break. The reality is that when it
comes to raising funds sailing and soaring enthusiats don't generate
too much sympathy when it comes to raising money. In the meantime a
lot of effort needs to go into the application and there will also be
more effort every year in filling out the additional financial
reports. plus you come under additional government scrutiny. SO . . .
you've guessed it - in my opinion, unless you have someone who has
stated he/she will make a sizable donation to your oranization if it
is tax deductible then don't bother with it. Allan.

Your organization should be ready, should such an opportunity occur, rather than try to react to such if it does and you are not ready. A few years ago, the owner of Garner Airport offered Tidewater Soaring Society the airport. TSS formed the Tidewater Soaring Foundation to accept the donation as it would have taken too long to convert TSS from a 501(c)(7) to a 501(c)(3).. Sometimes you have to operate outside of the box.

I have already spoken with Randy and have requested some information which he has yet to supply. This would help point the way forward.

I don't wish to get into a treatise here, but some of the benefits may include:

1. Tax deductible dues and joining fees for the members, all or in part.
2. Tax deductible donations of both money and materials. (Two 501(c)(3)chapters have reported that they are better off by $30k-$60k annually). I know of one 501(c)(3) chapter that received $1.5M from a member that also contributed to real property acquisitions.
3. Possible exemption of personal and real property and sales taxes. (Some states have sales taxes on aviation fuel, some states don't exempt personal property, some have reduced rates on real property)
4. Eligibility to draw on surplus state and federal property that supports the stated purpose of the organization.
5. Eligibility for grants.
6. In some states, eligibility to conduct raffles and/or bingo games for fund raising.

About 25 SSA chapters have 501(c)(3) determinations, including some of the largest and oldest. About 35 have 501(c)(7) determinations. Many others are domestic nonprofits, but have never filed for a tax exempt determination.. A club/chapter without a federal tax exempt determination may possibly have a tax liability.

Despite efforts of the SSA Clubs & Chapters Committee to warn clubs and chapters to get clean with their states and IRS over the past few years, especially since the reporting requirements change that became effective December 31, 2006, I have found this year about one chapter that apparently had its 501(c)(3) automatically revoked, a 501(c)(7) that also had its tax exemption revoked, and a 501(c)(3) regional organization that was also revoked.

States differ in their treatment of corporations, although many legislatues adopted similar statutes following initiatives to conform with modern corporate forms and federal statutes following guidance from the American Bar Association in 1985. Many allow domestic nonprofit corporations to get current, even after several years of non-reporting, usually with a penalty late charge for each year of non-compliance. Others administratively dissolve the corporations and do not allow reinstatement, requiring reorganizing. A few prohibit conducting of any business other than that related to formal dissolution once administratively dissolved. Fortunately, these are the exceptions, but the corporate form is there to put personal liability and risk at arm's length and is worth spending time on. Writing check's on a defunct corporations account? When we find that the registered agent of a club has been deceased for 12 years and that no reports had been filed in the interim, it's clear that the churning of voluntary leadership in our clubs and chapters lacks proper mentoring and continuity. We try to communicate these lessons learned and hope to do more in the future.

I agree, the charitable designation is not a panacea, but is just part of a much larger process of creating opportunities. The key is what you do with those opportunities.

Frank Whiteley
Chair, SSA Clubs and Chapters Committee
970-330-2050 7am-10pm MST

On Tuesday, March 6, 2012 11:42:57 PM UTC-7, Frank Whiteley wrote:
On Tuesday, March 6, 2012 7:22:03 PM UTC-7, Allan wrote:
Having been commodore of a couple of yacht clubs I can say that
everyone thinks that becoming a 501c3 organisation will open the flood
gates for fundraising, that people will stand in line to give you
money because they will get a tax break. The reality is that when it
comes to raising funds sailing and soaring enthusiats don't generate
too much sympathy when it comes to raising money. In the meantime a
lot of effort needs to go into the application and there will also be
more effort every year in filling out the additional financial
reports. plus you come under additional government scrutiny. SO . . .
you've guessed it - in my opinion, unless you have someone who has
stated he/she will make a sizable donation to your oranization if it
is tax deductible then don't bother with it. Allan.

Your organization should be ready, should such an opportunity occur, rather than try to react to such if it does and you are not ready. A few years ago, the owner of Garner Airport offered Tidewater Soaring Society the airport. TSS formed the Tidewater Soaring Foundation to accept the donation as it would have taken too long to convert TSS from a 501(c)(7) to a 501(c)(3). Sometimes you have to operate outside of the box.

I have already spoken with Randy and have requested some information which he has yet to supply. This would help point the way forward.

I don't wish to get into a treatise here, but some of the benefits may include:

1. Tax deductible dues and joining fees for the members, all or in part.
2. Tax deductible donations of both money and materials. (Two 501(c)(3)chapters have reported that they are better off by $30k-$60k annually). I know of one 501(c)(3) chapter that received $1.5M from a member that also contributed to real property acquisitions.
3. Possible exemption of personal and real property and sales taxes. (Some states have sales taxes on aviation fuel, some states don't exempt personal property, some have reduced rates on real property)
4. Eligibility to draw on surplus state and federal property that supports the stated purpose of the organization.
5. Eligibility for grants.
6. In some states, eligibility to conduct raffles and/or bingo games for fund raising.

About 25 SSA chapters have 501(c)(3) determinations, including some of the largest and oldest. About 35 have 501(c)(7) determinations. Many others are domestic nonprofits, but have never filed for a tax exempt determination. A club/chapter without a federal tax exempt determination may possibly have a tax liability.

Despite efforts of the SSA Clubs & Chapters Committee to warn clubs and chapters to get clean with their states and IRS over the past few years, especially since the reporting requirements change that became effective December 31, 2006, I have found this year about one chapter that apparently had its 501(c)(3) automatically revoked, a 501(c)(7) that also had its tax exemption revoked, and a 501(c)(3) regional organization that was also revoked.

States differ in their treatment of corporations, although many legislatues adopted similar statutes following initiatives to conform with modern corporate forms and federal statutes following guidance from the American Bar Association in 1985. Many allow domestic nonprofit corporations to get current, even after several years of non-reporting, usually with a penalty late charge for each year of non-compliance. Others administratively dissolve the corporations and do not allow reinstatement, requiring reorganizing. A few prohibit conducting of any business other than that related to formal dissolution once administratively dissolved. Fortunately, these are the exceptions, but the corporate form is there to put personal liability and risk at arm's length and is worth spending time on. Writing check's on a defunct corporations account? When we find that the registered agent of a club has been deceased for 12 years and that no reports had been filed in the interim, it's clear that the churning of voluntary leadership in our clubs and chapters lacks proper mentoring and continuity. We try to communicate these lessons learned and hope to do more in the future.

I agree, the charitable designation is not a panacea, but is just part of a much larger process of creating opportunities. The key is what you do with those opportunities.

Frank Whiteley
Chair, SSA Clubs and Chapters Committee
970-330-2050 7am-10pm MST

Randy reminded me he had sent part of the requested information which I discovered this morning. Still looking for the remainder.

He is out of town frequently, so his availability is cyclic.

Mea culpa,

Frank