The sentence that should make a treasurer sit up
Your club is short of cash. Someone proposes running introductory flights every Saturday through the summer, advertising properly, maybe a gift-voucher scheme. It works. Public flight revenue triples. Everyone is pleased.
Money taken from members of the public for the use of your aircraft and your airfield is nonmember income, and if your club holds exemption under section 501(c)(7), the amount of it you can take is limited — not by good taste, but by the test the IRS applies to whether you are still a social club at all.
This page is not going to tell you to stop flying members of the public. It is going to tell you that the number has a ceiling, that most clubs have never calculated theirs, and that finding out where you sit takes an evening.
What your club almost certainly is
Two exemptions come up in flying-club conversations, and they are not interchangeable.
501(c)(7) — social and recreational club. This is the standard and usually correct form for a soaring club. The IRS describes these organisations as being "supported by membership fees, dues, and assessments." That phrase is the whole design: the club exists for its members, is funded by its members, and its exemption follows from that relationship. Dues are not tax-deductible to the member, which surprises people, but the club itself is exempt on its member-derived income.
501(c)(3) — charitable or educational. Donations become deductible, which is why clubs chase it, and some genuinely qualify on educational grounds, particularly those built around youth programmes. It is a real option and it is not the default. See the dissolution section below before anyone files anything.
The two numbers
For a 501(c)(7), the IRS states the tests plainly. A club may receive:
- up to 35% of its gross receipts from nonmember sources, including investment income; and
- within that 35%, no more than 15% of gross receipts from nonmember use of club facilities and services.
Read the second one against your operation. Your aircraft and your airfield are club facilities. A stranger buying a ride is a nonmember using them. That revenue lands squarely in the 15% bucket, and the 15% is measured against gross receipts, not against profit and not against the flying account alone.
A club with $200,000 of gross receipts has roughly $30,000 of room in that inner test. At a typical ride price that is not an unlimited number of Saturdays, and a club that has decided introductory flights are its growth strategy can reach it without anyone in the room knowing the test exists.
The part nobody sees coming: your savings count
The outer 35% test includes investment income. Interest on the reserve you have been carefully building to replace the trainer is nonmember income under this test, sitting in the same allowance as your ride revenue.
This produces a genuinely perverse position and it is worth stating outright: the more responsibly your club saves toward its next glider, the less room it has to earn money from the public. Two pieces of obviously good management compete for one allowance, and no one tells you until they collide.
It does not mean stop saving. It means the two decisions belong in the same conversation, once a year, with both numbers on the table — and that is a conversation a committee can only have if somebody has done the arithmetic first.
What happens if you go over
Not automatic revocation. The IRS says that when nonmember income exceeds these levels it will examine all the facts and circumstances to decide whether the club still qualifies.
That sounds mild, and it is the part to take most seriously. The percentages function as a safe harbour: inside them you are simply not having this conversation, and outside them your exemption depends on a discretionary judgment about your organisation, made by someone who has never seen your airfield, at whatever moment they happen to look. Moving from "compliant" to "arguable" is a real change in a club's position even when the argument would eventually be won.
Separately, and regardless of the percentages: a club with $1,000 or more of gross income from an unrelated business must file Form 990-T and pay tax on it. Nonmember income is generally taxable to the club even while it sits inside the allowance. Exempt does not mean untaxed on this money — it means the club's exemption survives.
The record-keeping trap, which is the real one
This is the finding that should change what a club does on Monday morning.
The IRS position is that a club which does not maintain records adequate to distinguish member income from nonmember income faces a presumption that all of its income is unrelated business income and taxable accordingly.
Consider how a normal club actually keeps books. Tow fees and winch launches recorded as one line. A visiting pilot from another club charged the same way as a member. An introductory flight logged on the same sheet as a member's third circuit. A member's guest, a lapsed member, a course student who has not joined yet — all flowing into one number called flying income.
That club has not committed a wrong. It has committed a filing problem, and the penalty for a filing problem here is that the burden flips: instead of the IRS showing which receipts were nonmember, the club must show which were not. If the flight log does not record who was and was not a member at the time of the flight, that demonstration cannot be made after the fact.
The fix costs nothing and is entirely prospective: record membership status at the point of every transaction, not just the member's name. Whatever you keep the flight log in — a spreadsheet, a book, a system — add the field and start filling it in this season. It is the single cheapest piece of governance available to a club committee.
Before anyone files for 501(c)(3)
The attraction is obvious. Deductible donations, eligibility for grants that are closed to social clubs, a stronger case with a landowner or a municipal airport. Clubs with real youth training programmes sometimes have a genuine educational case.
The rule to read before you start is the one about winding up. A 501(c)(3)'s assets must, on dissolution, pass to another 501(c)(3) or to a governmental entity. They cannot be distributed to members.
Now apply that to a soaring club. The fleet was very often bought with members' money — capital contributions, refundable bonds, a whip-round in 1994 to buy the two-seater, an equity share that longstanding members quietly regard as theirs. Under 501(c)(3) that value can never come back to them, in any circumstance, including a voluntary and orderly wind-up with everyone in agreement.
For some clubs that is perfectly acceptable and they proceed with open eyes. For a club whose members believe they collectively own a fleet, it is a fundamental change in the deal, and it is the kind of thing that ought to be explained to the membership in plain words before a vote rather than discovered by a future committee.
What to do with this
- Find out what you actually are. A surprising number of committees cannot say for certain. Your determination letter is the answer; the IRS Tax Exempt Organization Search will confirm it in a minute if the letter has gone missing.
- Work out last year's percentages. Gross receipts as the denominator. Nonmember use of facilities over it — that is your 15% figure. Add investment income for the 35% figure. Two divisions.
- Add the membership-status field to your flight records now. It cannot be applied retrospectively, so every week you wait is a week you cannot later evidence.
- Take the two numbers to a CPA who has seen an exempt organisation before. Not a general tax preparer. One conversation, once, with real figures in hand, is worth more than any amount of committee speculation.
Where we are the wrong source
This is a description of a rule, not tax advice, and it is US-only. Every club's facts differ, state law adds its own layer on incorporation and on state-level exemption, and the specifics of what counts as nonmember use in a given operation are exactly the kind of question that needs a professional looking at your books.
The value we think this page delivers is narrower and, we would argue, more useful: knowing that the question exists. Most soaring club committees have never been told there is a ceiling on public flight income, have never separated member from nonmember receipts, and have never connected their reserve fund's interest to either. Those three facts cost an evening to check and can quietly compound for years.