Aug. 17, 2020

For more than a decade, the business aviation community has challenged the IRS’s attempts to apply federal excise taxes (FET) to aircraft management services. In 2017 the industry’s efforts were rewarded when the landmark Tax Cuts and Jobs Act of 2017 exempted payments for certain management services from air transportation excise taxes. But, as a recent NBAA News Hour webinar noted, only now are we reaching the culmination of this effort with the IRS release of a key NPRM.

The proposed rule provides draft regulations to implement the aircraft management services provisions of the Tax Cuts and Jobs Act. As News Hour moderator Scott O’Brien, NBAA senior director, government affairs, noted, the proposal has adopted important provisions advocated by NBAA and other business aviation industry groups.

However, as tax experts John Hoover, partner at Holland & Knight and chair of NBAA’s Tax Committee, and Glenn J. Hediger, president of Aviation Financial Consulting, discussed, comments currently being prepared by NBAA will be essential to clarify some questions within the rulemaking and ensure that the final rule is consistent with the legislative intent of the Tax Cuts and Jobs Act.

The proposed rule adopts many provisions advocated and supported by NBAA, including the application of the excise tax exemption to both Part 91 and Part 135 flights on the owner’s aircraft with assistance of a management company. The NPRM also includes a provision that states third-party charter flights will not affect the qualification of owner flights from the FET exemption. Finally, The IRS explained that the excise tax exemption will apply to all management fees.

Industry has advocated for management services payments made by related parties to be viewed as payments by the owner for purposes of the exemption, but that provision was not included in the IRS’s proposed rulemaking, said Hoover and Hediger. They added that NBAA will again argue for a broad definition of “aircraft owner” in its comments to the IRS.

Read the IRS’s NPRM

“The Tax Cuts and Jobs Act provision on aircraft management services was a significant victory for the business aviation community and demonstrates how much we can achieve when we work together,” said O’Brien “The proposed rulemaking, too, is a testament to the efforts of NBAA’s Tax Committee and illustrates how far we have come on this issue. We are now analyzing the NPRM and will provide the IRS with comprehensive and constructive comments by the Sept. 29 deadline.”

NBAA has spearheaded industry efforts to reform the federal excise tax. Find out more at NBAA’s dedicated resource, FET Information for Aircraft Management Companies.