Corporate ownership of airplanes
I want to set up a corporation (for liability reasons) to own an airplane with 3 other pilots. Does anyone have any suggestions on what type of corporate structure would be best if we don't plan on leasing it to anyone else? (for-profit/non-profit/whatever?)
I am in process of doing the exact same thing. I would also like to do a LLC (Limited Liability Corp)for the same reason, but am getting some advice from someone in such a former situation. I will pass on info to you.
Also, if you havent gotten it already, call AOPA for their AIRCRAFT PURCHASERS KIT. It is excellent! Phone 301-695-2000 fax 301-695-2375 or www.aopa.org.
Ill keep you informed of what I learn. Susan
Thanks for the response and the link - I'll check it out...
Just to let you know some of what I have found out in case it helps you, the main division appears to be between a for-profit corporation and a non-profit one. Both have their pluses and minuses, neither of which fit the concept of owning a airplane that well.
Like you, my initial idea was to set up a for-profit LLC partly because of ease and partly because I have set up other for-profit corporations and know what the accounting and legal requirements are. The problem with a for-profit as it relates to pleasure airplane ownership is that eventually the IRS will come knocking on your door asking why you haven't made a profit (usually within 3-5 years). If you can't show that you have been trying to make a profit, they can declare the corporation void and you are back to the beginning. Since we do not plan on leasing the airplane back, there shouldn't be a profit and we would have problems with the IRS, not to mention attorneys for people trying to sue us for damages.
It has been suggested to me that maybe a non-profit corporation is the way to go. Usually it would be organized as a 501 (c) 7 (social club). That works fine except that you have to file with the IRS to get non-profit status which costs $500 and there is no guarantee that they grant non-profit status to you. Also, to maintain the non-profit status you must show that there is a "social" activity organized around the airplane. (One person suggested that we get together every couple of months, drink beer, and wax the airplane.) If you can see a way to satisfy that requirement it might be a good way to go.
However it is done (and hopefully someone will suggest a way that I haven't come up with), to maintain the corporate liability veil you have to be fanatical about maintaining the corporate records. That means regular meetings, formal minutes, voting on resolutions, and generally maintaining the appropriate separation between the users and the corporation. Without doing that an attorney will blow right past the corporate veil and go after the owners individually, which is what we are all trying to avoid.
Hope this helps a little. I look forward to hearing the results of your research...
You missed one or two major examples of a social function that easily qualifies under IRS regs as far as I know.
One would be to affiliate yourself with the local C.A.P. chapter. You end up going to some meetings, practice SAR missions and some real-life ones. But, you're only compensated for your actual expenses (fuel & oil).
Another is the "Angel Flight" group. There are numerous organizations that use "volunteer" pilots and aircraft to transport people to and from medical appointments, etc. who could not otherwise afford air transportation. In case you're interested, here's the url for the Angel Flight cahpter in Washington.
Comments and opinions are my own and do not reflect those of my employer.
It has been a while since your post and I wondered what you had learned. My acountant wants me to put my airplanes in a chapter C corp, but I don't want the hassle of another set of corporate books and I don't want them in the chapter C that is my business, as I don't want my corporation at risk either. I use one plane about 20% for business and just rent it to corp personally. It would be nice to expense the whole thing but it wouldn't stand up in an audit, and there is always a tax problem getting something out of a corporation. I would be quite interested in any ideas you have.
We set up our airplane as an LLC, but be it LLC, Sub S, or C Corp it much the same. The particulars vary by state, but an LLC or Sub S may be a little less onerous than a C Corp - certainly the reporting is easier. The big difference between what you have and what we have is that, at present, we don't have any plans to rent out the airplane to people outside the LLC. The LLC is primarily for liability protection, and as such we still have the corporate paper trail to maintain that you would have in any corporation. Maybe even more so, because any attorney worth her salt is going to look for any possible hole through which she could pierce the corporate veil. Sorry, but if that is what you are trying to avoid, you do it at your own peril - but it is probably still better than what you are doing now. As for expensing some or all of it, your accountant is the better judge, but I think you need to have greater than 50% business usage in order to get a write off.
Another thing to consider, but unrelated to the corporation, is insurance. I would suggest that you make sure your insurance covers the business use of the airplane. From what you said, you are probably the only pilot, but the insurance company may view it as a business use and require business insurance for coverage which is about twice the price.
I had a friend that won a brand new Cutlas in the old GAMA drawing in the early 80's. He got an attourney to set a corp in an eastern state to get around gift tax, but the insurance for a low retract time corporate pilot was astronomical and he sold the airplane after about 18 months. What I'm doing is not technicaly chartering the airplane, just letting the corp pick up enough gas to offset the value of the use. Kind of backdoor, but I know it will stand up to audit, and it works for FAA and insurance. How do you get around the benefit of the airplane being declared a dividend? are you paying for the use of airplane at a rate that the LLC breaks even?