June 2, 2022

Are you confident your aircraft ownership and operational structures are compliant with both FAA and IRS limitations and requirements? While the two agencies’ regulations often intersect, they aren’t always consistent or easy to interpret and comply with, said Scott O’Brien, NBAA’s senior director of public policy and advocacy.

“You can come up with a great tax structure that causes trouble with the FAA,” said John Copley, a principal at the law firm of Garofalo Goerlich Hainbach PC, who added that a key factor is whether the structure involves compensation or is for hire, which requires an air carrier certificate.

Mary Comazzi of Barnes & Thornburg LLP noted that there are available exceptions that allow operators to make charges or accept reimbursement for flights without holding a commercial air carrier certificate. These exceptions include dry leasing, joint ownership, time share agreements, interchange agreements and the affiliated group exemption, identified in Part 91.501 of the FARs.

“There are permissible avenues to reimbursement and cost sharing, and there are traps which must be avoided,” said Comazzi, explaining that the most common pitfalls are the flight department company trap and inadvertent wet leasing.

“We’re continuing to see the FAA focus on the areas of illegal flight department companies and sham dry leases,” Comazzi added.

Not only can an individual or entity be subject to FAA enforcement action in these scenarios, but an entity found to be conducting operations for compensation or hire without proper FAA authorization could be denied insurance coverage in the event of an accident or incident, or be in violation of financing, leasing or other similar agreements.

Therefore, aircraft owners and flight department managers must carefully consider both the FAA and the IRS perspectives when establishing or changing an aircraft ownership model or flight department structure.

Tax and legal experts will share cost sharing and reimbursement options and limitations associated with aircraft operated under Parts 91 and 135 during the upcoming NBAA Business Aviation Tax Seminar in White Plains, NY, which is slated to be held June 21, the day before the NBAA Regional Forum at New York’s Westchester County Airport (HPN). With many new aircraft owners coming into the market, this seminar will cover the most significant federal and state tax topics that typically arise when creating an aircraft ownership and operating structure.

In the opening session, aviation attorneys Comazzi and Copley will identify commonalities and differences between FAA and IRS rules related to different aircraft ownership and operating structures, along with common missteps in setting up ownership and operational structures.

This tax seminar presentation will set the foundation for the remainder of the event, which will feature education sessions covering:

  • Challenges for business aviation posed by the Tax Cuts and Jobs Act
  • Best practices for deducting commuting expenses
  • How to work with aircraft management companies
  • State sales and use tax considerations
  • Aircraft-related disclosures for public companies

“Business aircraft use patterns are continuing to evolve, and issues such as the commuting deduction disallowance and state tax planning across multiple jurisdictions are hot topics we also will cover in detail at the seminar,” O’Brien explained.

Learn more about the NBAA Business Aviation Taxes Seminar.