December 9, 2013
In a recent opinion, the U.S. Tax Court held that a new aircraft delivered in December 2003 was not “placed in service” for depreciation purposes until modifications were completed in 2004.
The taxpayer lost its bonus depreciation deduction in 2003 and had to pay a 20% tax penalty. Based on testimony from the taxpayer, the court concluded that installation in 2004 of a conference table and video monitor in the aircraft was necessary for the aircraft to be fully ready to perform the specific function required by the taxpayer and thus be placed in service in 2004.
The court based its legal analysis on cases dealing with power plants and a runway that needed additional work to be ready to function at the levels for which they were intended to operate. Although the aircraft in this case was able to conduct flights, the court concluded that without the conference table and video monitor it was not able to meet its intended function as described by the taxpayer.
This case may affect buyers of aircraft who have modifications to the aircraft performed in a subsequent year after their initial purchase. Aircraft buyers in this scenario are advised to carefully review this case with their advisers to determine any potential impacts. The NBAA Tax Committee is currently reviewing the Tax Court opinion and will publish a more detailed article in the coming weeks.
Review U.S. Tax Court Opinion on Placed in Service Dates and Depreciation
(215 KB, PDF)
- Accelerated Depreciation Extended for 2013 (January 7, 2012) by Richard C. Farley, Jr
- Aircraft Acquired in 2012 May be Eligible for 100% Bonus Depreciation (December 3, 2012) by Richard C. Farley, Jr
- Bonus Depreciation: New Revenue Procedure Expands Planning Opportunities (July 18, 2011) by Victor Charles Anvick, ATIS Group LLC
- Congress Approves Expanded Tax Benefits For Business Aircraft Purchase (December 17, 2010)
- Bonus Depreciation Reintroduced for New Aircraft Purchasers (September 2010) by Ed Kammerer, Hinckley Allen & Snyder LLP
- Bonus Depreciation: Deduction at the State Level (March 2004)
- Depreciating Corporate Aircraft (June 2001) by Troy A. Rolf, Galland, Kharasch, Greenberg, Fellman & Swirsky, P.C.