I actually do instruct for free (at least in sailplanes), in that I give dual to any member of my glider club at no charge (even primary training for new members seeking to learn to fly). The FAA, however, says I am being compensated because I can log the time. Here's the word from AOPA:
The FAA alleged volunteer instructors received compensation by “accumulating flight time” and “generating goodwill.” In other words, the FAA believes giving away your time and talent equates to compensation.
source:
https://www.aopa.org/news-and-media...is-at-risk?utm_source=epilot&utm_medium=email
Under that interpretation, all instruction is for compensation, even if the student is your own spouse or child. You are required to log instruction in the student's logbook by 61.189(a), so you can't just decline to accept the accumulated flight time, because you've made a record of it and signed it. In practice, if you're getting "compensation", that means other things, too, such as:
1) every standard category aircraft I instruct in now needs 100 hour inspections, because it is being used commercially
2) insurance that covers only personal use (not commercial operations) may be invalid if you ever take a flight review in the aircraft
3) if the federal government says a CFI is getting "compensation", it likely needs to have a value determined and be reported to the IRS on a form 1099 or be declared on a 1040
and a host of other unforeseen consequences.
Worst of all, a LODA may protect you from violating some of the FARs about use of the aircraft, but does not exempt you from those other consequences.
Anything that makes a donation magically turn into compensation
to the donor is just too twisted to comprehend.