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NATA Sees More Enforcement on Illegal Charter Ahead

NATA’s newly formed Illegal Charter Task Force is hoping to see increased enforcements against so-called gray charter practices as it continues to work with the FAA to highlight the issue. The association pointed to a June 29 announcement of a proposed civil penalty for illegal charter activity, and said, “This penalty brings to light the ramifications for operating an illegal charter business, and it’s expected that more will come.”

The FAA is proposing a $3.3 million civil penalty against The Hinman Co. of Portage, Michigan, the agency said, “for conducting hundreds of commercial aircraft operations in violation of the Federal Aviation Regulations, including failing to hold the required operator certificate for the flights being performed.” This activity occurred through Hinman’s subsidiary Hincojet and involved a Beechcraft Beechjet 400A and a Hawker 900XP, the agency added.

The company has 30 days to respond to the allegations, which include double-billing clients, charging more than permissible under Part 91, and failing to comply with Part 135 record-keeping and training requirements.

NATA in recent years has been meeting with the FAA over the issue, as illegal charter has been a long-standing concern. These concerns culminated in the formation of the Illegal Charter Task Force, which held its first meeting during NATA’s annual meeting and aviation business conference last month.

During that meeting, the task force focused on defining illegal charter and distinguishing between intentional and unintentional non-compliance. “Illegal charters bypass the FAA’s safety standards in order to undercut the pricing of legitimate businesses by creating a potential safety hazard, putting legitimate operators at a competitive disadvantage, and dodging the payment of appropriate federal excise taxes,” NATA said. “The goal of the task force is to work in conjunction with industry and the FAA to identify operators that attempt to evade the rules and regulations that constitute a legal charter operation, and ensure the protection, safety, and integrity of an industry held to a very high standard.”

by Kerry Lynch

– July 3, 2018, 10:47 AM

 

2018-07-03T14:56:08+00:00 July 3rd, 2018|Aircraft Tax, Aviation News, Blog, Government Regulation|

Tax Bill Wins Praise for Expensing, Managed Fee Stances

Negotiators on Capitol Hill agreed to retain two key provisions in the final version of the tax overhaul package: one that would extend immediate expensing measures to both used and new aircraft and another clarifying that the 7.5 percent air transportation tax does not apply aircraft management fees. The package could receive a final vote in the House and Senate this week.

The bill would allow for the write-off of the expenses for both used and new aircraft in one year. Past “bonus” depreciation measures have covered only new aircraft. Currently, businesses depreciate aircraft over a five-year period. The bill repeals like-kind exchanges for business property, but NBAA said it believes the immediate-expensing measure will offset that elimination. The immediate-expensing measure is set to expire in 2022, but has a phaseout period through 2026. “It is a priority for NBAA and will help provide the tools necessary to grow our economy,” said NBAA president and CEO Ed Bolen.

Meanwhile, the managed aircraft measure, meanwhile, will provide certainty on the tax treatment of the fees for the first time, bringing to an end an issue that that had been at the forefront for management businesses for years. The issue became particularly critical after a 2012 IRS Chief Counsel opinion left aircraft management firms vulnerable to back taxes and penalties. The IRS had audited a number of companies, assessing hefty taxes on the management fees. But after an outcry from industry, the IRS put the opinion on hold in May 2013 and stopped enforcing the audit findings surrounding the fees, pending clarification. However, the agency still has not issued a clarification.

“NATA is deeply appreciative that…conferees retained provisions in the tax bill that provide our member companies with long-sought certainty as to the tax status of aircraft management services and encourage investment in the new and used aircraft markets,” stated NATA president Martin Hiller.

NBAA noted that the legislation contains a number of other helpful provisions, including the reduction of the corporate tax rate from 35 percent to 21 percent, as well as a new 20 percent deduction for pass-through businesses. The association added it would work with a broad coalition to restore like-kind exchanges.

2017-12-18T13:41:38+00:00 December 18th, 2017|Aircraft Tax, Aviation News, Blog, Government Regulation|

NBAA Calls on Members To Contact Congress on Tax Bill

NBAA is encouraging its members to weigh in with their lawmakers on bonus depreciation, like-kind exchanges and business aircraft management fee measures as Capitol Hill negotiates a final comprehensive tax bill this week. The House and Senate versions of the tax bill address different aspects of these measures.

Both provide for 100 percent immediate expensing, or “bonus depreciation,” of business assets, but the House bill covers both new and used aircraft. The measures would apply to purchases through 2023, but the Senate has a phase-down that continues through 2027.

Like-kind exchanges for business assets would be repealed under both bills. Under like-kind exchange, taxable gains on the sale of a business asset can be deferred if that asset is exchanged for a similar asset. “The immediate expensing provision helps make up for the like-kind exchange repeal, but there is, of course, a sunset date for immediate expensing,” said Scott O’Brien, the senior director of government affairs for NBAA. “But the Senate language, which does not allow immediate expensing for preowned equipment, is a disincentive for the purchase of preowned business aircraft.”

NBAA also noted the Senate bill measure clarifies that business aircraft management service fees are not subject to the commercial airline ticket tax. The association created an electronic letter to help members contact Congress specifically on accelerated depreciation.

Read Expanded Version

By AINalerts

2017-12-13T10:23:49+00:00 December 13th, 2017|Aircraft Tax, Aviation News, Blog, Government Regulation|

IRS AUDITS AND RECORDKEEPING

The IRS audit process can be challenging for any business aircraft owner or operator, so NBAA has created resources to help Members prepare for audits and understand how the process functions. Developing a record-keeping system that maintains the information commonly requested by IRS auditors is one of the most important steps in preparing for a potential audit. In general, taxpayers have the burden of proving they are entitled to a specific tax deduction or credit, which makes having the necessary records for substantiation very important.

In NBAA’s Member resource, Record-Keeping Rules for Business Aircraft (300 KB, PDF), the history of IRS substantiation and record-keeping rules is reviewed, and specific best practices are provided regarding the types of records that an aircraft owner or operator should keep. For example, the resource provides details on how to substantiate the business purpose of a flight, which is a common audit topic.

NBAA also created a Navigational Guide for Audits (225 KB, PDF), which describes the IRS audit process from start to finish and includes details on appeal options for taxpayers. Starting with the initial contact by the auditor and moving through the information document request process to the audit findings, the guide provides business aircraft owners and operators with resources to manage IRS audits.

by NBAA

2017-10-26T10:28:20+00:00 October 26th, 2017|Aircraft Tax, Blog, Government Regulation|

Senate Appropriators Issue a Bipartisan Rejection of ATC Privatization

NBAA on July 28 commended the Senate Appropriations Committee for rejecting privatization of the nation’s ATC system in an annual federal spending bill. Proposals for privatizing ATC have been pushed by the big airlines as part of a continuing debate over FAA reauthorization, but NBAA has mobilized the business aviation community to oppose such legislation, offering several Contact Congress tools, including a new toll-free action line: 1-833-GA-VOICE. Learn more.

by NBAA 7/31/2017

2017-07-31T10:06:27+00:00 July 31st, 2017|Aviation News, Blog, FAA, Government Regulation|

GAO Report Validates NBAA Position on Improper Diversion of Jet-A Taxes

Washington, DC, Aug. 10, 2016 – The National Business Aviation Association (NBAA) today said a new government report validates long-standing concerns expressed by NBAA and other groups about the validity of a so-called “fuel fraud” provision on aviation taxes.

The report, published this week by the U.S. Government Accountability Office (GAO), determined that as a result of the provision, between $1 billion and $2 billion has been improperly held back from the Airport and Airway Trust Fund over largely unfounded concerns about the use of aviation jet fuel in ground vehicles.

In place for more than 10 years, the provision automatically diverted a portion of excise taxes on turbine aircraft fuel to the Highway Trust Fund, based on the purported rationale that commercial truck operators might have been avoiding payment of taxes on diesel fuel by instead purchasing the turbine aircraft fuel for use in their vehicles.

The provision tasks aviation fuel vendors with voluntarily filing for credits on a per-transaction basis, which then correctly routes those funds for aviation-related uses. In comments to the GAO, NBAA and other stakeholders noted the credit process is unnecessarily burdensome, and offers little practical incentive for vendors to follow it.

Read the new GAO Report on the impact of the fuel fraud provision on aviation-infrastructure funding.

“After an extensive and unbiased investigative process, the GAO’s findings validate our belief that the current system is fundamentally flawed, and not structurally aligned with the intent of either the highway or aviation trust funds,” said NBAA Chief Operating Officer Steve Brown.

The report, which came about following a request for a GAO investigation on the issue by Rep. Mike Pompeo (R-4-KS), determined that any uses of aviation fuel in ground vehicles over the past decade have been “rare,” and that both “economic and technological disincentives” further restrict the likelihood of such diversions taking place today.

“We thank Congressman Pompeo for his request for a fair and equitable, third-party investigation on this issue,” Brown continued. “With the facts from this report now in hand, our hope is that Congress will correct this issue in a future transportation bill that properly routes all turbine fuel excise tax revenues to the aviation trust fund.”

 

by  Dan Hubbard, (202) 783-9360, dhubbard@nbaa.org

2017-06-13T02:14:29+00:00 August 15th, 2016|Aircraft Tax, Aviation News, Blog, Economics of Aviation, Government Regulation|

Aircraft Dry Leases

There are numerous reasons companies place aircraft in leasing structures – and several legal responsibilities flight department personnel need to be aware of.

Leasing is a common practice for business aircraft, but not always well understood. Aviation personnel may fly, maintain and schedule an aircraft without giving much thought to its ownership and leasing structure – until it affects the operation.

“I think people are sometimes put off by it because leasing is complex and setting a lease up requires legal consultation,” said Ryan Demoor, a financial analyst for aviation at Amway. “But there are good reasons for it, especially when there are users with different needs for the airplane.”

Business airplane leases fall into two categories: leases from a bank, which are simply a means of financing to acquire an aircraft, and related-party leases, which are a way to facilitate utilization of the aircraft. A business may set up a lease between related parties for several reasons, including FAA regulations, state sales-tax planning, risk management and sharing the use of an aircraft.

Nonexclusive Dry Lease

 

 

 

 

 

 

FAA Compliance Considerations

For certain types of aircraft uses, FAA operational rules make leasing necessary. Part 91 permits aircraft operations that do not involve compensation or hire, with only a few narrow exceptions. Any type of reimbursement or capital contributions to the entity that operates the aircraft are generally considered compensation.

While Part 91 does allow chargebacks and other methods of cost sharing between entities in an affiliated group, the FAA has limitations on which structures qualify for grouping together. For certain structures involving more than one legal entity or subsidiary, leasing may be necessary in order to share costs between the parties and still comply with Part 91.

For companies seeking to offset the costs of aircraft ownership, Part 91 prohibits offering the aircraft for charter (that would require a Part 135 certificate). However, leasing allows a company to transfer operational control of the aircraft to a Part 135 charter carrier and receive a portion of the charter revenue in the form of lease payments.

“I also see leasing to employees when they need the aircraft for personal use,” said Barbera. “When the company wants to avoid providing use of the aircraft as a perquisite, a time-sharing agreement – which is a type of ‘wet lease’

[in which the lessor provides both the aircraft and the crew] – enables the employee to pay back the incremental costs – limited to two times the cost of fuel, plus some other specific expenses – in exchange for use of the airplane and a flight crew.”

In addition, the FAA’s complex citizenship definitions may prevent a limited partnership or other entity owned or controlled by non-citizens from qualifying as a registered owner on the FAA Aircraft Registry. “In these cases,” said Barbera, “it’s common practice for an owner/ trustee to register the aircraft with the FAA and lease the aircraft or license it to the company for its business use.”

Dry Leases and Sales Tax Planning

The FAA also does not permit a single-purpose entity with no function other than operating aircraft to conduct flights under Part 91. This is often referred to as “the flight department company trap,” and it hinges on the Part 91 requirement that aircraft operations be incidental to the business.

“If you’re under Part 91, the entity that operates the aircraft cannot only be in the business of operating the airplane,” explained Jeff Wieand, senior vice president of Boston JetSearch. “That would not be ‘incidental to the company’s business,’ because, for that entity, air transportation would be the business.”

One of the most common strategies companies use to avoid this trap is having a separate legal entity acquire the airplane. This entity then leases the aircraft to the existing business but does not employ or provide the flight crew. This is called a “dry lease.” The lessee has full operational control of the airplane. For Part 91 operators, federal excise tax generally should not apply to the payments under a dry lease.

Aircraft Dry Lease Leasing is also a common planning strategy for managing state sales-tax payments. Many states have a sale-forresale tax exemption. An ownership structure involving a dry lease to a related party can allow state sales tax to be paid by the aircraft users on each lease payment, instead of immediately upon purchase.

“Whether you want to take advantage of the sale-forresale exemption or not depends on the law in the state you’re in, how long you’re planning to keep the airplane, its purchase price, the sales tax rate and current lease rates,” explained Demoor.

Lease payments should be made at an arms-length rate, and the entire structure must be properly documented. Special attention should be paid to the lease rate, and it may be helpful to have an appraisal of the aircraft’s value to support the amount of the lease payment.

Risk Management and Multiple Users

When an aircraft is used by more than one party, leasing can be the most effective way to allocate ownership liability and operational liability among the various users.

Sometimes, a company’s lenders or other stakeholders will place limits on the types of assets that a company may own. “Similarly, in certain highly regulated industries – such as utilities, banking and insurance – regulations may discourage direct ownership of an aircraft,” said Barbera. “In these cases, it may be necessary for the aircraft be owned in a separate entity and leased to the business that uses it.”

It’s not uncommon for small businesses or business partners to share the use of an aircraft. For example, doctors, real-estate developers or retail franchise owners may find it economical to use a business airplane by sharing the costs among all the users. A common way to accomplish this is through leasing.

“Say you have two business partners,” suggested Demoor, “who together purchase a Beechcraft Bonanza for their work, but one of them travels once a week and the other only needs the airplane about 30 hours a year.

Naturally, they’d want to segregate the ownership costs of the airplane from the usage costs. So each of their companies could dry lease the airplane from a separate entity that owns the aircraft whenever they need to use it.” This structure enables decentralized business users to proportionately bear the operating costs of the airplane, but each lessee is in operational control of all flights under the lease.

“In a structure with several, nonexclusive dry leases, you can’t require the other lessees to use your pilots,” advised Jeff Agur, CEO of The VanAllen Group. “The pilots can be independent contractors or employees of a management company, but cannot be provided by the entity that owns the aircraft.” You can stipulate that any pilot flying the aircraft must meet FAA and insurance requirements, “but each lessee needs to have the flexibility, every time they fly, in choosing a flight crew.”

Be Aware of FAA Requirements

Companies may set up leasing structures for several of the aforementioned reasons, or for other reasons, including federal tax planning, minimizing employee perquisites (required reporting by the Securities and Exchange Commission for directors and executives) and transportation of other related parties, such as board members. Whatever the reason, leasing structures trigger certain FAA regulatory requirements.

A business may set up a lease between related parties for several reasons, including FAA regulations, state sales-tax planning, risk management and sharing the use of an aircraft.

For leases of large (over 12,500 pounds) or turbine- powered aircraft, Part 91 requires a written lease agreement. “A copy of the lease needs to be carried onboard every time you fly,” said Demoor. “Also, the FAA’s truth-in-leasing requirements are two-fold: Within 24 hours of executing a lease, you need to send a copy to the FAA’s Aircraft Registry in Oklahoma City. Second, the first time any entity uses a leased aircraft for the first time, you need to notify your local flight standards district office at least 48 hours prior to the flight.”

Because a dry lease is a transfer of operational control, Demoor stressed it’s critical for flight crews to always keep track of who the lessee and lessor are on any flight. “Especially if you have several nonexclusive leases to different entities,” he said, “you need to know who the actual operator is, who’s responsible for that flight.”

Before a flight is dispatched, Demoor ensures that the flight crew writes down the name of the aircraft owner, the entity operating that flight and the user entity represented by the passengers. “If you’re ramp checked,” warned Demoor, “those will be the first questions out of the inspector’s mouth.”

Also for multiple users, every lessee should be on the insurance certificate. In addition, “you need letters of authorization (LOAs) for each of the different dry lessees,” said Agur. “For every operator, you also need a minimum equipment list and – if applicable – an RVSM and other LOAs that may be required for the flight.”

Dec. 4, 2015 

by NBAA

2017-06-13T02:14:33+00:00 June 14th, 2016|Blog, Economics of Aviation, FAA, Government Regulation, Leasing|

IRS Guidance on Charitable Flights

Each year the Treasury Department’s Office of Tax Policy and the IRS issue a Priority Guidance Plan to identify and prioritize federal tax issues that should be addressed through regulations, revenue rulings and other published guidance. This allows the government to focus resources on guidance projects that are both important for taxpayers and necessary for effective tax administration. While the plan includes priority projects, there is not a specific deadline for completion of each item. It is also possible for items to be included on the Plan for multiple years.

For 2015-2016, the Priority Guidance Plan contains 277 projects that the IRS and Treasury Department will use to allocate resources from July 2015 through June 2016. Two of NBAA’s key federal tax issues, guidance on the application of federal excise taxes to aircraft management fees and guidance to address the “leasing company trap,” which unfairly penalizes aircraft owners that lease an aircraft to related parties are on the current Plan.

The Plan for 2016-2017 is currently being developed, and NBAA submitted a request to address a regulatory glitch that effectively penalizes business aircraft owners who conduct charitable flights. Under current Treasury regulations, fixed costs (including depreciation) that are attributable to charitable flights can be treated as non-deductible. This imposes a tax penalty on companies conducting charitable flights, and NBAA believes the result is contrary to the intent behind the law and regulations. Review NBAA’s request on charitable flights.  Review NBAA’s Request on Charitable Flights (180 KB, PDF)

NBAA and its Tax Committee will continue meeting with officials at the Treasury Department and IRS to monitor progress on these three important issues. Updates will be provided to Members as they become available.

by NBAA  May 20, 2016

2017-06-13T02:14:36+00:00 May 24th, 2016|Aviation News, Blog, Government Regulation|

U.S. government publishes “voluntary best practices” for drone use

U.S. government publishes “voluntary best practices” for drone use

Companies and individuals should refrain from using drones to spy on their employees or their neighbors, but for news organizations it’s well within their remit to do just that.

At least, according to new guidelines published by the U.S. government on how to use drones, or unmanned aircraft systems (UAS), as officials now like to call them.

The government’s advice comes by way of the National Telecommunications and Information Administration (NTIA), which is part of the U.S. Department of Commerce. The NTIA has just released a new set of best practice guidelines on drones, with specific advice for companies, individuals and news organizations after a year of consultations with all three groups.

As is suggested by the word “guidelines”, these rules are not legally binding, but a recommendation. Nonetheless, they will serve as the foundation of a much broader effort by the U.S. government on how to regulate drone technology and assess its future impact on citizens and business.

The new NTIA guidelines are in many ways the antithesis of the Federal Aviation Authority (FAA)’s recently published drone rules – whereas the FAA’s rules seem deliberately precise, the NTIA’s recommendations are somewhat vague; while the FAA threatens people with fines, the NTIA instead preaches for users to take caution; where the FAA often seems unrealistic, the NTIA goes out of its way to be as realistic as possible.

As for the specific guidelines for each of the three groups, the NTIA pays a lot of attention to companies wanting to use drones. It’s guidelines for companies state they should give people advance warning of the fact they intend to fly drones over their homes or place of work. It recommends they provide approximate times and should inform people of the information they will be gathering and what they intend to do with that information. The guidelines further stress that companies should only gather information that is necessary, and they should ensure that data is kept secure.

RELATED:  Drones are now being used in South Africa to combat illegal poaching of endangered wildlife

The NTIA also advises against certain uses altogether, for example anything to do with employment eligibility, promotion, or retention; credit eligibility; and healthcare treatment eligibility. In other words, the NTIA doesn’t recommend companies spy on their employees (but of course, this is only a “recommendation”).

As far as individual drone flyers go, the NTIA says it’s better to let people know ahead of time if you’re going to be buzzing around their heads, taking pictures and videos of them. It also warns against flying over private property, gathering personal information, and says drone operators should give people a reasonable level of privacy, and delete any data on people if they ask.

Last but not least, news organizations. Quite why the NTIA thought necessary to separate them from the broader “companies” category isn’t entirely made clear, but the document notes that: “Newsgathering and news reporting are strongly protected by United States law, including the First Amendment to the Constitution. The public relies on an independent press to gather and report the news and ensure an informed public.”

As such, the rules do not apply to news organizations, which are instead advised to “operate under the ethics rules and standards of their organization, and according to existing federal and state laws.”

by  | May 22, 2016

2017-06-13T02:14:36+00:00 May 23rd, 2016|Aviation News, Blog, drones, Government Regulation, Section 333, UAS, UAV|

FAA Rapped On Pilot Skills

The FAA isn’t doing enough to ensure pilots can actually fly well enough to take over if aircraft flight management systems fail according to a report obtained by the Associated Press, AP says the unreleased report from the Transportation Department’s Office of Inspector General is critical of the FAA’s lack of oversight on pilot flying skills. “Because FAA hasn’t determined how carriers should implement the new requirements or evaluated whether pilots’ manual flying time has increased, the agency is missing important opportunities to ensure that pilots maintain skills needed to safely fly and recover in the event of a failure with flight deck automation or an unexpected event,” AP quoted the report as saying.

The FAA is working on the issue. In 2013 it issued a safety alert to airlines urging them to get pilots to brush up on their manual flying skills but as sometimes happens the bureaucratic baggage that goes with that kind of recommendation is bogging down implementation. The OIG says the FAA hasn’t yet come up with the  rules on manual flying and even when it does, airlines have until 2019 to comply. And with further automation coming into the picture with ADS-B and NextGen, there will be even less stick time for pilots in the future, the AP quotes the report as saying. “The opportunities air carrier pilots have during live operations to maintain proficiency in manual flight are limited and likely to diminish,” the report said. “While the FAA has taken steps to emphasize the importance of pilots’ manual flying and monitoring skills, the agency can and should do more to ensure that carriers are sufficiently training their pilots on these skills.” For what it’s worth, the report apparently says the FAA agrees with those sentiments and hopes to have the new rules ready in about a year.

By Russ Niles | January 10, 2016

2017-06-13T02:14:42+00:00 January 12th, 2016|Blog, FAA, General Aviation, Government Regulation|

FAA Small Unmanned Aircraft Registration Begins

FAA Small Unmanned Aircraft Registration Begins

It’s here! The Federal Aviation Administration’s (FAA) Small Unmanned Aircraft System (UAS) registry is now live and ready for UAS owners to use at www.faa.gov/uas/registration.

Registration is free for the first 30 days with a rebate, then $5 after that.

During the registration process, each owner must provide his or her name, home address and e-mail address. When registration is complete, the web application will generate a Certificate of Aircraft Registration/Proof of Ownership including a unique identification number for the UAS owner, which must be marked on the aircraft.

Owners using the model aircraft for hobby or recreation will only have to register once and may use the same identification number for all of their model UAS. The registration is valid for three years.

All aircraft weighing more than 0.55 pounds (250 grams) and less than 55 pounds (approx. 25 kilograms), including payloads such as on-board cameras, must be registered.

Under this rule, owners who previously operated an unmanned aircraft exclusively as a model aircraft prior to December 21, 2015, must register no later than February 19, 2016. Owners of any other UAS purchased for use as a model aircraft after December 21, 2015 must register before the first flight outdoors. Owners may use either the paper-based process or the new streamlined, web-based system. Owners using the new streamlined web-based system must be at least 13 years old to register.

If assistance is needed with registration, email UAShelp@faa.gov.

The FAA also reminds unmanned aircraft owners there’s no need to work with a “drone registration” company to help file an application for a registration number. The Registration site is designed to be simple and easy to use for every hobbyist.

The FAA has partnered with several industry associations to educate the public about using unmanned aircraft safely and responsibly. Remember these rules when you fly:

• Fly below 400 feet altitude.
• Keep your unmanned aircraft in sight at all times.
• Never fly near manned aircraft, especially near airports.
• Never fly over groups of people, stadiums or sporting events.
• Never fly near emergency response efforts.

Working together, we can keep the skies safe for everyone.

2017-06-13T02:14:43+00:00 December 22nd, 2015|drones, FAA, FAA Authorization, Government Regulation, UAS, UAV|

NBAA Welcomes Legislation Resolving Federal Excise Tax Issues for Management Companies

Washington, DC, Sept. 25, 2015 ­– The National Business Aviation Association (NBAA) today welcomed the introduction of congressional legislation that makes clear management services provided to assist an aircraft owner in the operation of its aircraft are not subject to the ticket tax imposed on commercial air transportation.

Introduced by Rep. Pat Tiberi (R-12-OH) on Sept. 24, House Bill 3608 would exempt from the ticket tax component of federal excise tax, any amounts paid by the aircraft owner for maintenance and support of their aircraft by a management services company, such as for crew scheduling and dispatch, flight planning services, insurance, and aircraft maintenance. The exemption is limited to non-commercial flights by the aircraft owner on its aircraft or an aircraft obtained through a qualifying lease.

“NBAA has worked steadfastly to gain clarity on this matter, and we are grateful to Rep. Tiberi for introducing this critical legislation to relieve aircraft management services companies from the threat of significant retroactive tax assessments that could cripple their businesses,” said NBAA President and CEO Ed Bolen.

Existing tax law states that non-commercial flights are generally subject to the 21.9 cents per gallon tax on jet fuel, and not the 7.5 percent commercial ticket tax. However, guidance issued to IRS auditors in 2008 sought to impose the commercial ticket tax on flights where an aircraft owner obtained support services from a management company, treating them as if they were conducting airline or air charter operations.

A March 2012 Chief Counsel Advice memo to IRS field agents also took the position that the commercial ticket tax applies to management fees and other amounts paid by an aircraft owner to an aircraft management services company.

This policy, and resulting IRS audit position, led to significant retroactive tax assessments for management companies that put many at risk of having to close their doors. In addition, the IRS never provided management companies with clear and precise guidance as to how the federal excise tax should be applied, but rather, companies had to sift through often conflicting IRS legal interpretations.

“Many management companies are small- to medium-sized businesses and unable to bear the significant financial burden after being found liable for past taxes they may no longer even be able to collect from clients, in addition to the costs of appealing an IRS audit.” said NBAA Senior Manager of Tax & Finance Policy Scott O’Brien.

Following a coordinated advocacy effort from industry stakeholders, including work by the NBAA Tax Committee and Member Companies, in May 2013 the IRS suspended federal excise tax (FET) assessments on audits involving management services companies and aircraft owner flights, however the underlying policy issues have remained unresolved.

 

Contact: Dan Hubbard, (202) 783-9360, dhubbard@nbaa.org

2017-06-13T02:14:52+00:00 September 28th, 2015|Aircraft Tax, Aviation News, Business Aircraft Industry News, Government Regulation|

NBAA Welcomes Legislation Resolving Federal Excise Tax Issues for Management Companies

Washington, DC, Sept. 25, 2015 ­– The National Business Aviation Association (NBAA) today welcomed the introduction of congressional legislation that makes clear management services provided to assist an aircraft owner in the operation of its aircraft are not subject to the ticket tax imposed on commercial air transportation.

Introduced by Rep. Pat Tiberi (R-12-OH) on Sept. 24, House Bill 3608 would exempt from the ticket tax component of federal excise tax, any amounts paid by the aircraft owner for maintenance and support of their aircraft by a management services company, such as for crew scheduling and dispatch, flight planning services, insurance, and aircraft maintenance. The exemption is limited to non-commercial flights by the aircraft owner on its aircraft or an aircraft obtained through a qualifying lease.

“NBAA has worked steadfastly to gain clarity on this matter, and we are grateful to Rep. Tiberi for introducing this critical legislation to relieve aircraft management services companies from the threat of significant retroactive tax assessments that could cripple their businesses,” said NBAA President and CEO Ed Bolen.

Existing tax law states that non-commercial flights are generally subject to the 21.9 cents per gallon tax on jet fuel, and not the 7.5 percent commercial ticket tax. However, guidance issued to IRS auditors in 2008 sought to impose the commercial ticket tax on flights where an aircraft owner obtained support services from a management company, treating them as if they were conducting airline or air charter operations.

A March 2012 Chief Counsel Advice memo to IRS field agents also took the position that the commercial ticket tax applies to management fees and other amounts paid by an aircraft owner to an aircraft management services company.

This policy, and resulting IRS audit position, led to significant retroactive tax assessments for management companies that put many at risk of having to close their doors. In addition, the IRS never provided management companies with clear and precise guidance as to how the federal excise tax should be applied, but rather, companies had to sift through often conflicting IRS legal interpretations.

“Many management companies are small- to medium-sized businesses and unable to bear the significant financial burden after being found liable for past taxes they may no longer even be able to collect from clients, in addition to the costs of appealing an IRS audit.” said NBAA Senior Manager of Tax & Finance Policy Scott O’Brien.

Following a coordinated advocacy effort from industry stakeholders, including work by the NBAA Tax Committee and Member Companies, in May 2013 the IRS suspended federal excise tax (FET) assessments on audits involving management services companies and aircraft owner flights, however the underlying policy issues have remained unresolved.

View the legislation.

Contact: Dan Hubbard, (202) 783-9360, dhubbard@nbaa.org

Biz Aviation Braces for Looming U.S. Government Shutdown

 – September 22, 2015, 10:28 AM

The aviation community is bracing for the prospect of another government shutdown as Congress remains deadlocked over Planned Parenthood funding. The U.S. government is funded through September 30, leaving Congress little time to clear appropriations for Fiscal Year 2016, which begins on October 1. House and Senate lawmakers have drafted a stopgap measure that would temporarily fund the government, but a dispute over whether to cut off Planned Parenthood funding is threatening progress on this measure.

NBAA told members it is monitoring developments closely given the potential for significant ramifications to the business aviation industry. When the government shut down in 2013, the FAA furloughed more than 15,000 employees and shuttered the aircraft registry in Oklahoma City. This halted all business aircraft transactions, title searches and other necessary activities for aircraft financing and sales. The move to close the registry was unprecedented, since it had remained open through previous shutdowns. NBAA warned that a similar situation could occur during this shutdown, should it occur.

A number of other aviation functions were affected during the 2013 shutdown, including ATC modernization efforts, aeromedical case reviews and import/export of aircraft. Further, a number of FAA safety inspectors were furloughed. Air traffic control functions, however, were deemed essential and continued operating.