IRS Memo Points to Effort To Tax Aircraft Management

The U.S. Internal Revenue Service Office of Chief Counsel issued a memo on March 9 that justifies applying the 7.5-percent federal excise tax to aircraft management fees paid by Part 91 operator customers. The memo responds to a key question: “Are the monthly management fees paid to the aircraft management company…‘amounts paid for taxable air transportation of persons,’ and thus taxable?” It concludes that taxable air transportation of persons is occurring and thus “the monthly management fees, as well as the separately reimbursed amounts, paid to management…are taxable.” According to Andrew Richmond, CEO of charter/management firm TWC Aviation, “What they’ve attempted to do is take a simplistic issue and create a ruling without understanding all the potential variations that actually take place in the industry.” Added Keith Swirsky, a tax expert and attorney at GKG Law, “I think there is going to be an evolution of thought process on this, but the pace of IRS audits of aircraft management companies has already accelerated and will continue to accelerate.” A management company executive told AIN, “This could be devastating for the aircraft management business.” Both NBAA and NATA are concerned about the IRS memo, and NBAA officials are planning a meeting with the IRS’s chief counsel’s office. NATA noted that the memo “heightens concern that the IRS is intent on trying to collect taxes on aircraft management situations that have historically been viewed, by both the FAA and the IRS, as noncommercial.”

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