California corp.

"Tony Cox" wrote in message hlink.net...
"Robert M. Gary" wrote in message
om...
My graduate law class just covered legal entities. By luck my partner
and I had registered our Mooney in a Mutual Benefit Corp (C-corp).


What is a "Mutual Benefit Corp"? A non-profit? As I remember, you'll
need to file more papers to avoid the minimum franchise tax of $800 (CA),
and will need to continue to pay that fee until your status is approved
(which can take over a year).

A Mutual Benefit Corp is already set up as non-profit. Once to corp is
approved you are already exempt from the $800/yr. You just need to
file to show that you don't make money.

Had
we not, the attorney teaching the class said we would probably be
considered "Partners" under the eyes of the law. If we had just put
the plane in our names we would have been "Partners". As near as I can
tell "Partners" is the laws punishment for not doing anything else,
"Partners" happens automatically by default. "Partners" is the worse
case scenario because it comes with unlimited liability.


There are other ways of protecting yourself against liability than forming
a corp. The extra insurance is often cheaper than messing with the
paperwork of maintaining a corp (if you can get a 'flat' policy).

Can you buy insurance to protect yourself against non-aviation
activities your partner does while going to the airport?

If your
partner is driving to the airport and hits a dog, the dog's owner can
sue you and take your house.

Perhaps the next class will deal with "piercing the corporate veil".
You might not be as enthusiastic about corporate ownership after
that.

It can actually be pretty tough to break, otherwise no one would ever
both with corporations. However, you do have to careful. If you load a
plane over gross and crash into someone, the corp is going to do you
any good, but it won't hurt you either.

-Robert

"Rob Thomas" wrote in message .. .
I chose to go with a LLC and deal with the $800 excise tax every year. It's
really silly that they charge that much for the "opportunity to conduct
business within California." However, the LLC provides me with protection
and allows me not to have to deal with maintaining two entities for tax
purposes (my LLC is where I make my income BTW). The $800 is also
deductable, so depending on your tax bracket you should recoup $200 or so.

The California C-Corp has a minimum tax of $800, so any year that it doesn't
bring in income, you still owe $800. Many folks get burned by that by not
properlyl shutting down the C-Corp after they are done with it and the State
merilly charges $800 and fees and penalties. Then someone is shocked to see
a $5000 bill from the State a few years down the road.

That's what I like about the Mutual Benefit Corp. You're already set
up as non-profit the moment your articles are approved.

"Robert M. Gary" wrote in message
m...
"Rob Thomas" wrote in message
.. .
I chose to go with a LLC and deal with the $800 excise tax every year.
It's
really silly that they charge that much for the "opportunity to conduct
business within California." However, the LLC provides me with
protection
and allows me not to have to deal with maintaining two entities for tax
purposes (my LLC is where I make my income BTW). The $800 is also
deductable, so depending on your tax bracket you should recoup $200 or
so.

The California C-Corp has a minimum tax of $800, so any year that it
doesn't
bring in income, you still owe $800. Many folks get burned by that by
not
properlyl shutting down the C-Corp after they are done with it and the
State
merilly charges $800 and fees and penalties. Then someone is shocked to
see
a $5000 bill from the State a few years down the road.

That's what I like about the Mutual Benefit Corp. You're already set
up as non-profit the moment your articles are approved.

Wrong!

As a former president of the board of a nonprofit corporation in
California I am very familiar with the requirements for a nonprofit
corporation. Go to the IRS website and research the requirements for a
federal 501(c)(3) determination before you go any further.
The state of California does NOT determine the nonprofit status of a
corporation. The IRS issues a letter of determination. The Attorney General
and Franchise Tax Board, providing some other requirements are met, rely on
the IRS determination.
Nonprofit status is NOT automatic. There is significant paperwork to
submit for to the feds to establish the status.
The fact that a corporation does not show a profit does NOT make it a
nonprofit corporation.
The fact that a nonprofit corporation increases its net worth year after
year does not invalidate its nonprofit status.

"Robert M. Gary" wrote in message
om...

A Mutual Benefit Corp is already set up as non-profit. Once to corp is
approved you are already exempt from the $800/yr. You just need to
file to show that you don't make money.

This must be new. When I was on the board of a flying club
some years back, we had to apply for non-profit status (through
the IRS, not CA). As I remember, it took over a year to come
through. We also made money (well, had a small positive retained
earnings) from time to time without having to pay tax. The point is
that you don't *intend* to make money.


Can you buy insurance to protect yourself against non-aviation
activities your partner does while going to the airport?

General liability insurance probably covers it. The point is not that
a corporation is necessarily *wrong*, just that there are other ways
to achieve what you want. Maintaining a corp is a pain in the arse,
with big penalties if you bugger it up -- penalties for not filing things
on time, worries about people piercing the corporate veil, directors
being liable for errors and omissions. Talk to your insurance agent.


Perhaps the next class will deal with "piercing the corporate veil".
You might not be as enthusiastic about corporate ownership after
that.

It can actually be pretty tough to break, otherwise no one would ever
both with corporations. However, you do have to careful. If you load a
plane over gross and crash into someone, the corp is going to do you
any good, but it won't hurt you either.

Depends how tough your opponents lawyer is, and how much money
*you* have! They may well try, and you'd have to defend. Even if you
are squeaky clean, it'd be big bucks. It may even be that setting up
the corporation deliberately to avoid personal liability is sufficient to
invalidate it. And even if the liability in some accident is finally pinned
on the corporation, you - as a director - may end up under the spotlight
for not properly running the operation of the corporation. I've know
wealthy people who have refused to be corporate officers because
of just such concerns.

One big advantage you've not touched on. Having the corp own the
plane makes it much easier for 'partners' to come and go. And since
the plane title doesn't change, there's no question about liability for
use tax no matter which states the 'partners' live.

"Casey Wilson" wrote in message . ..
"Robert M. Gary" wrote in message
m...
"Rob Thomas" wrote in message
.. .
I chose to go with a LLC and deal with the $800 excise tax every year.
It's
really silly that they charge that much for the "opportunity to conduct
business within California." However, the LLC provides me with
protection
and allows me not to have to deal with maintaining two entities for tax
purposes (my LLC is where I make my income BTW). The $800 is also
deductable, so depending on your tax bracket you should recoup $200 or
so.

The California C-Corp has a minimum tax of $800, so any year that it
doesn't
bring in income, you still owe $800. Many folks get burned by that by
not
properlyl shutting down the C-Corp after they are done with it and the
State
merilly charges $800 and fees and penalties. Then someone is shocked to
see
a $5000 bill from the State a few years down the road.

That's what I like about the Mutual Benefit Corp. You're already set
up as non-profit the moment your articles are approved.

Wrong!

As a former president of the board of a nonprofit corporation in
California I am very familiar with the requirements for a nonprofit
corporation. Go to the IRS website and research the requirements for a
federal 501(c)(3) determination before you go any further.

IRS?? IRS is federal.

The state of California does NOT determine the nonprofit status of a
corporation. The IRS issues a letter of determination. The Attorney General
and Franchise Tax Board, providing some other requirements are met, rely on
the IRS determination.

Incorrect. The California Franchise Tax Board does. The form is FTB
3500. There is no requirement that you file anything with the IRS
before filing out this form (nor does the form even ask about Federal
Status). In fact the state is VERY explicit that state non-profit
status is determined independent of feder. You fill this out when you
incorporate.


Nonprofit status is NOT automatic. There is significant paperwork to
submit for to the feds to establish the status.
The fact that a corporation does not show a profit does NOT make it a
nonprofit corporation.

But since the fed's don't have a minimum tax, no one cares about
federal status. Unless of course you have a company that is paying
saleries, etc.

(Robert M. Gary) wrote in message . com...
"Tony Cox" wrote in message hlink.net...
"Robert M. Gary" wrote in message
om...
My graduate law class just covered legal entities. By luck my partner
and I had registered our Mooney in a Mutual Benefit Corp (C-corp).


What is a "Mutual Benefit Corp"? A non-profit? As I remember, you'll
need to file more papers to avoid the minimum franchise tax of $800 (CA),
and will need to continue to pay that fee until your status is approved
(which can take over a year).

A Mutual Benefit Corp is already set up as non-profit. Once to corp is
approved you are already exempt from the $800/yr. You just need to
file to show that you don't make money.

I misspoke a little on this (after checking my paperwork). You want to
file a 3500 with the FTB when you incorporate. That form allow you to
wave the minimum state franchise tax. Its a pretty easy form. State
statute puts NO LIMIT on the number of retroactive years you can
request.

-Robert

"Tony Cox" wrote in message hlink.net...
There are other ways of protecting yourself against liability than forming
a corp. The extra insurance is often cheaper than messing with the
paperwork of maintaining a corp (if you can get a 'flat' policy).

Another problem is that there is no insurance out there that
guarantees no one will sue you and take your house away from you.
Insurance relies on the assumption that anyone suing you will settle
with the insurance company and choose not to ask the court to take
your property.

"Robert M. Gary" wrote in message
om...

But since the fed's don't have a minimum tax, no one cares about
federal status.

You should, because they'll want at least 15% of your
retained earnings if you don't obtain non-profit status.

Unless of course you have a company that is paying
saleries, etc.

That has nothing to do with anything. Paying salaries
(and those filing requirements) are the same regardless
of profit or non-profit, corporation, partnership or
whatnot.

Please do yourself a favour, now that you have your
corporation and plane, by reading up on exactly what
you've let yourself in for. Nolo press have a good
selection of guides and books at www.nolo.com.
Setting out on the right foot will be cheaper and less
hassle than trying to correct mistakes later on.

"TaxSrv" wrote in message
...
"Tony Cox" wrote:

As for 'random' audits, from what you say, entities (people
or corporations) are in no danger whatsoever of being
audited if they report earning and expenses according to
industry norms. Somehow, this doesn't ring true.

Filing such a return is a criminal offense even without proof of tax
evasion purpose. In the realm of actual tax fraud, taxpayers don't
make up income/deductions in a manner such as using industry averages,
so tax criminals must know this is a most foolish way to go about it
(and legally they are wise).

Yes, but legality aside, how exactly would they get caught if
not through a random audit? If selection (for audit) is predetermined
by income/deduction criteria, then filing according to industry averages
would seem to be a rather sensible strategy for a tax criminal to pursue.
Assuming, of course, that they would pay less tax in the process.

"Robert M. Gary" wrote in message
om...
"Casey Wilson" wrote in message news:ooe2c.70522
As a former president of the board of a nonprofit corporation in
California I am very familiar with the requirements for a nonprofit
corporation. Go to the IRS website and research the requirements for a
federal 501(c)(3) determination before you go any further.

IRS?? IRS is federal.

The state of California does NOT determine the nonprofit status of a
corporation. The IRS issues a letter of determination. The Attorney
General
and Franchise Tax Board, providing some other requirements are met, rely
on
the IRS determination.

Incorrect. The California Franchise Tax Board does. The form is FTB
3500. There is no requirement that you file anything with the IRS
before filing out this form (nor does the form even ask about Federal
Status). In fact the state is VERY explicit that state non-profit
status is determined independent of feder. You fill this out when you
incorporate.

Maybe not before, but...

As copied from the California Codes

CALIFORNIA CODES
GOVERNMENT CODE
..
(f) "Nonprofit organization" means any organization qualifying
under Section 501(c)(3) of the Internal Revenue Code in the preceding
tax year...

.....oh, by the way, the corporation is filing the 990 or 990EZ federal
income tax statements, right?
The one at http://www.irs.gov/pub/irs-pdf/i990-ez.pdf?