IRS FET Tax Plan Now Under Congressional Scrutiny

 - June 26, 2012, 2:35 PM

Rep. Thomas Petri (R-Wis.) sent a letter early last week to Dave Camp, chairman of the House Ways and Means Committee, asking for clarification of Congress’s intent on applying the Federal Excise Tax (FET) to managed aircraft. “There is concern that as a result of a recent Chief Counsel Advice memo,” he wrote, “the IRS may be expanding the scope of operations covered by commercial taxes and imposing an additional tax on monthly management fees.”

Petri’s letter added, “The IRS appears to have reinterpreted what is ‘taxable transportation’ and whether monthly management fees paid by the owner to the management company are subject to additional tax. I understand that there have recently been some audits where the IRS is applying this new interpretation to the previous seven years, resulting in huge fees. I would appreciate your review as to whether it is the intent of Congress that flights on private aircraft that involve aircraft management companies be considered commercial flights for IRS tax purposes.”

Meanwhile, an NATA-NBAA excise tax working group met with IRS officials last week. The group “presented a detailed analysis and review of existing IRS guidance and case law for the agency to consider.” NATA is holding a series of three webinars about the FET issue, beginning July 11.


This is a welcome inquiry. There are a number of problems with the IRS' apparent aggressiveness with respect to auditing, and potentially assessing, management companies in this manner. First, the Chief Counsel advice does not carry the same weight or legal significance as existing regulations or tax court decisions. Second, there is an unquestionable "gotcha" factor here. If in time management companies are deemed to be receiving "amounts paid for taxable transportation", the industry must be given some reasonable opportunity to adjust to this, which is absolutely a change in policy and not a change in law.

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