The IRS has released a much-anticipated proposed rule designed to update and clarify the treatment of aviation excise taxes surrounding aircraft management services.
The proposal follows a directive from the Tax Cuts and Jobs Act, which essentially exempted certain management fees from the application of the commercial air transportation federal excise tax. While the Jobs Act measure was welcomed, subsequent IRS guidance left open many questions on the application of the taxes.
Slated for publication in the July 31 Federal Register and open to comments for 60 days, the notice of proposed rulemaking (NPRM) attempts to address the numerous requests for clarification and outlines definitions surrounding aircraft management as required by law.
The NPRM focuses on questions surrounding five areas: use of a possession, command, and control test for amounts paid for aircraft management services; treatment of aircraft management services payments made by people closely related to the owner, but not the owner; the effect of the choice of flight rules (Part 91 versus Part 135); certain situations involving charter use; and the effects of how payment arrangements are made.
The IRS outlines the legislative directive to exempt amounts paid by an aircraft owner for aircraft management services related to maintenance and support of the aircraft owner’s aircraft or flights on the aircraft owner’s aircraft. It further defined aircraft management services as those assisting the owner with administrative and support services, such as scheduling, flight planning, and weather forecasting; obtaining insurance; maintenance, storage, and fueling of aircraft; hiring, training, and provision of pilots and crew; establishing and complying with safety standards; and “such other services as are necessary to support flights operated by an aircraft owner."
In addition, the tax agency outlines the legislative approach to fractional ownership and refers to the pro-rata share of taxes that are applied in cases involving charter, among other issues highlighted in the proposal.
The National Air Transportation Association, which has worked with Congress and the IRS on the issue, said it was reviewing the rules and expects to provide further analysis.