A final Internal Revenue Service (IRS) regulation clarifying the federal excise tax (FET) obligations of aircraft management companies and aircraft owners was shaped by the decisive action of NBAA and its Tax Committee members, who identified critical challenges in the agency’s notice of proposed rulemaking that could have limited the association’s legislative victory in the Tax Cuts and Jobs Act (TCJA) of 2017.
The IRS final rule provides regulatory guidance on the TCJA provision that makes clear that the 7.5% FET on commercial air transportation is not due when owners conduct flights on their own aircraft with a management company’s assistance. Since this legislative victory, NBAA and its Tax Committee, led by Chair John Hoover, a partner in the law firm of Holland & Knight LLP, has championed industry efforts to work with the Treasury Department and IRS on regulations that prevent the improper and retroactive application of FET to management companies and aircraft owners.
Those efforts culminated in an IRS final rule that adopts many NBAA-suggested provisions that eliminate potentially confusing language in the proposed rule and provide clear standards for taxpayers and the government.
“The IRS final rule illustrates the importance of NBAA’s standing committees, which bring together talented and committed leaders from across the business aviation community to promote our industry and provide regulators the expertise needed to shape clear and appropriate regulations,” said Scott O’Brien, NBAA’s senior director of government affairs.
“The final rule affirms that owner trust arrangements, used to register thousands of business aircraft for regulatory compliance purposes, are covered by the FET exemption.”
Following detailed comments submitted by NBAA and the National Air Transportation Association, the final rule affirms that owner trust arrangements, used to register thousands of business aircraft for regulatory compliance purposes, are covered by the FET exemption. At NBAA’s urging, the rulemaking also abandons a proposal to expand the definition of leases disqualified from the FET exemption, which would have severely limited the exemption’s application to many common aircraft-ownership structures.
Also, in response to NBAA’s comments, the final rule eliminates a complicated allocation method that would have been required when owners take flights on a substitute aircraft. Instead, only the fair market value of those specific charter flights involving substitute aircraft will generally be subject to FET. The final rule also clarifies that aircraft owners qualify for the FET exemption regardless of whether they conduct flights on their own aircraft under Part 91 or Part 135.
“We thank the IRS and the Department of Treasury for their commitment to creating this final rule, and we applaud the concerted efforts of the NBAA Tax Committee in leading an industry-wide effort to achieve a clear and equitable application of FET for thousands of aircraft owners and management companies,” said O’Brien.
Learn more about federal excise tax at nbaa.org/fet.
Industry Challenge
A proposed IRS rule would have resulted in the improper and retroactive application of federal excise tax (FET) to management companies and aircraft owners.
NBAA Response
NBAA input helped lead to a final rule that makes clear that excise tax is not due when owners conduct flights on their own aircraft with a management company’s assistance.
International Business Aviation Council Ltd.