Advocacy Achieves Breakthrough on Federal Excise Tax Issue

In 2008, the Internal Revenue Service (IRS) published a revised version of its Air Transportation Excise Tax Audit Technique Guide which is designed to be a reference for field auditors. While the guide provides a summary of the laws, regulations, legal opinions, and IRS rulings relating to Federal Excise Tax (FET), it applies this guidance to scenarios that are not consistent with how aircraft management agreements normally function. This has led to certain IRS agents utilizing the guide to potentially misinterpret the law and assess FET on management company arrangements.

Since the release of the audit guide, the IRS has become more aggressive in audits of aircraft management companies and charter operators. In particular, auditors have begun assessing the FET on a wide variety of non-commercial flight operations, including flight operations conducted by aircraft owners under Part 91 of the Federal Aviation Regulations (FAR) in situations where the aircraft is managed by an outside aircraft management company.

In March 2012, the IRS chief counsel’s office advised the agency that FET applies to management fees and other amounts paid by an aircraft owner to an aircraft management company in Chief Counsel Advice (CCA) 2012-10026. The management company provided pilot services, maintenance services, scheduling services and other aircraft management services for the owner’s own operation of the aircraft. A CCA does not constitute binding precedent, but it represents the opinion of IRS counsel.

On May 16, 2013, the IRS informally announced that it will suspend the assessment of FET on owner flights on aircraft managed by aircraft management companies. Learn more about this announcement in a new article. Review the article.

NBAA Actions

On April 18, 2012, NBAA President & CEO Ed Bolen and Members of NBAA’s Tax Committee met with the IRS Chief Counsel to express the industry’s significant concerns with the recent IRS CCA. Bolen conveyed that this CCA has caused unprecedented concern throughout the business aviation community and that industry is eager to convene policy meetings with IRS staff. While opposing this change in policy, NBAA urged that, at a minimum, the IRS apply this on a prospective basis so as to avoid all the problems associated with a retroactive change in the law. Learn more about the meeting from the article “NBAA Urges IRS to Back Away from Taxing Aircraft Management Fees.”

On June 19, 2012, members of the NBAA/NATA Federal Excise Tax working group met with officials from the IRS in Washington, DC for another meeting to express the industry’s concerns over the CCA. During the meeting, working group representatives presented the associations’ objections to the conclusions drawn by the IRS in the CCA, and provided a detailed analysis supporting the industry’s position that payments for aircraft management services should not, in general, be subject to FET on commercial air transportation. Review the working group response to the IRS (115 KB, PDF).

On & March 26, 2013, NBAA and the National Air Transportation Association (NATA) met with officials from the IRS Chief Counsel’s office. The associations explained previous guidance on FET applicability to aircraft management companies is unclear, and Members face uncertainty regarding their potential retroactive and future tax liability. The IRS must provide clear guidance, consistent with applicable law, before imposing liability for retroactive taxes. At the meeting, IRS officials committed to request the necessary resources to develop additional guidance in an open and public process.


NBAA Tax Committee Members have prepared detailed articles and analysis for Members explaining the real-world implications of the IRS’s CCA on the taxability of aircraft management fees. While NBAA continues to work with the IRS on a fair and equitable solution, affected aircraft owners and service providers should review these resources and consult with qualified tax advisors.

NBAA/NATA Response to IRS: Distinction Between Typical Part 91 Management Company Arrangements and Rev. Rul. 74-123 (900 KB, PDF)

NBAA/NATA Response to IRS CCA (115 KB, PDF)

IRS CCA 2012-10026 States That Excise Tax Applies to Aircraft Management Service Arrangements, by John Hoover (110 KB, PDF)

An Analysis of the Recent IRS CCA Asserting That Management Companies are Subject to Transportation Tax, by Phil Crowther (110 KB, PDF)

New Excise Taxes Being Levied by the IRS on Business Aircraft Operations, by Keith G. Swirsky and Christopher B. Younger (26 KB, PDF)

IRS CCA 2012-10026: Taxability of Aircraft Management Fees
May 20, 2013