NetJets Sues IRS Over $642.7M Tax Bill

 - November 17, 2011, 3:28 PM

Four of NetJets’ subsidiaries–NetJets Aviation, NetJets International, NetJets Large Aircraft and Executive Jet Management (EJM)–are suing the U.S. government over a $642.7 million IRS tax bill for past federal excise taxes (aka “ticket tax”) and assessed penalties and interest. In the lawsuit, filed on Monday, NetJets said, “The ticket tax was not intended to apply to private aircraft owners and the fees they pay to maintain and operate their aircraft.” Further, it alleges that the IRS is also attempting to “improperly collect the tax from [the NetJets subsidiaries] based on secondary liability, despite having failed to give EJM or the NetJets entities any advance notice that the IRS intended to apply the tax with respect to many of the fees at issue in this case.” NetJets maintains that the so-called “ticket tax” is not applicable to both monthly management and hourly fees the company charges its customers, citing IRS precedent and lack of any previous “clear guidance” from the agency regarding the specific types of fees included in the tax. “Unfortunately, the IRS position…is that all fees paid by the owners to the fractional managers are subject to the tax, whether the owners fly on their own airplane or not,” Jonathan Levy, legal director of Naples, Fla.-based aviation tax consulting firm Advocate Consulting, told AIN. “This is a hot legal issue and we will be watching the NetJets case closely.” Both NetJets and the IRS declined to comment on “pending litigation matters.”