In June 2007 at the recommendation of Steve the Club incorporated as a for-profit corporation with the apparent intent that at a later date the Club would become a non-profit corporation. A for-profit is taxed. A non-profit is not taxed.
Incorporation provides a layer of financial protection for the personal assets of Club members and officers. Steve and perhaps others were uncomfortable serving as officers without the protection. I helped draft the Articles of Incorporation because I wanted them done right but declined to further assist since I considered incorporation unnecessary, complicated and expensive. The Club had operated for over 30 years without incorporation. I and many others some quite wealthy had served as officers satisfied that the various waivers, recreational use immunity statues and USHPA insurance policy provided sufficient protection.
There has been a trend among flying clubs to incorporate and our neighbors, BAPA, MCHGA and WOR, are incorporated. Sonoma apparently was incorporated but the incorporation lapsed.
At the May 2009 meeting Steve began the process of converting the Club to a non-profit asking the members to amend the bylaws by approving a new set of bylaws 32 pages long purchased for $800.00. The bylaws, however, were for a large organization; not a small club and transferred many basic rights from the members to the officer/directors allowing the officer/directors to make the rules, regulations, set the fees and even decide who could join the Club. I opposed the bylaws and using MCHGA’s bylaws as a model drafted four pages of bylaws preserving member rights. At the meeting the members endorsed my bylaws but made some minor modifications. Bylaw amendments require approval at two consecutive meetings and votes will be required at the June and July meetings. After bylaws are approved and an application prepared, the Club will ask the IRS to grant non-profit status.
At the May meeting I asked Steve and the Club’s Treasurer how much tax the Club would save by converting from a for-profit corporation to a non-profit corporation. Neither was able to answer. They could not answer because the Club as I recently learned has never paid taxes, filed tax returns or even prepared an annual statement.
I asked my accountant, a CPA, how much tax the Club should have been paying. He estimated the Club’s yearly tax bill as $950.00, $150.00 Federal and $800.00 California. California has a minimum corporate tax. Since it will be at least two years after incorporation before we are able to request non-profit status, the combined tax liability is $1,900.00 without penalties or late fees. When I asked Steve about the failure to pay tax, he said the Club would apply for a “retroactive exemption”.
For whatever reason the incorporation has not been done in a business like manner or followed the example of neighboring flying clubs. The application for non-profit status should have been filed immediately after the Club was incorporated eliminating the need to seek and the risk of not being granted a “retroactive exemption”. $800.00 should not have been spent for a set of unusable form bylaws designed for a large organization inappropriate for a small flying club. Perfectly good bylaws were available free online at the BAPA, WOR and MCHGA WEB sites.
A large amount of the Club’s money has been wasted. But for the cost of a new clubhouse roof a number of years ago, the $800.00 spent on the bylaws may have been the largest expenditure in Club history. The failure to pay taxes and the gamble on a “retroactive exemption” has placed an even larger amount of the Club’s depleted treasury at risk.
Under these circumstances it is now time that the person responsible for these losses consider reimbursing the Club for the financial damages he has caused.