IRS Suspends Potential FET Assessments to Aircraft Management Companies

On May 16, the Internal Revenue Service (IRS) informed the National Air Transportation Association (NATA) that the IRS will complete open audits, but suspend any potential assessments until new guidance on the Federal Excise Tax (FET) for aircraft management companies is developed.

Background on the issue

In recent years, the IRS has been auditing aircraft management companies, and asserting that Federal Excise Taxes apply to flights by aircraft owners on managed aircraft.

The IRS has argued that, since the management company has taken possession, command, and control of an aircraft, and is providing air transportation service to the aircraft owner, the aircraft management company is liable for FETS.

However, some aircraft owners and aviation advocacy groups have complained that the IRS has not issued clear guidance or precedent to legally tax the aircraft management companies.  

In response to the complaint

In response to complaints by aircraft management companies that the Federal Excise Tax is unfair, the IRS announced that it is moving forward on developing new guidelines for applying FETs to aircraft management companies.

In May, officials from the Small Business/Self Employed Division (SBSE) of the IRS met with representatives of the National Business Aviation Association (NBAA) and the National Air Transportation Association (NATA). NATA, the voice of aviation business, is the public policy group representing the interests of aviation businesses before Congress and the federal agencies.

The goal of the meeting was to discuss and obtain clear guidance on the Federal Excise Tax issue on owner-operated use of aircraft being utilized in an aircraft management agreement.

A productive meeting

NATA President and CEO Thomas L. Hendricks said, "During this meeting, we strongly advocated our case and IRS officials did an outstanding job of tackling our concerns. They asked that we give them a week to review and they came back to us (in May) with a decision to complete open audits but suspend any potential assessments until new guidance on the application of the FETs is developed.”

Hendricks continued, "We have come a long way with the IRS on this and we effectively reversed their views on how the industry functions and what the rules should be. I am very appreciative of the dialogue and professionalism these IRS officials displayed during this process.

After sitting down with them face to face, I believe they have a better understanding of our industry. We have more to do and we will continue to work with the Service in a constructive and professional manner.”

Concluded Hendricks, “We anticipate, in the coming months, that guidance will be developed to clarify future actions and audit standards, per the discussion with IRS officials.”

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