This is bad news from the IRS

[gret]

IRS Memo Points to Effort To Tax Aircraft Management AIN Alerts

The U.S. Internal Revenue Service Office of Chief Counsel issued a memo on March 9 that justifies applying the 7.5-percent federal excise tax to aircraft management fees paid by Part 91 operator customers. The memo responds to a key question: “Are the monthly management fees paid to the aircraft management company…‘amounts paid for taxable air transportation of persons,’ and thus taxable?” It concludes that taxable air transportation of persons is occurring and thus “the monthly management fees, as well as the separately reimbursed amounts, paid to management…are taxable.” According to Andrew Richmond, CEO of charter/management firm TWC Aviation, “What they’ve attempted to do is take a simplistic issue and create a ruling without understanding all the potential variations that actually take place in the industry.” Added Keith Swirsky, a tax expert and attorney at GKG Law, “I think there is going to be an evolution of thought process on this, but the pace of IRS audits of aircraft management companies has already accelerated and will continue to accelerate.” A management company executive told AIN, “This could be devastating for the aircraft management business.” Both NBAA and NATA are concerned about the IRS memo, and NBAA officials are planning a meeting with the IRS’s chief counsel’s office. NATA noted that the memo “heightens concern that the IRS is intent on trying to collect taxes on aircraft management situations that have historically been viewed, by both the FAA and the IRS, as noncommercial.”​

This also was published last week-

Buffett’s NetJets Countersued by U.S. for Unpaid Taxes

​

http://www.bloomberg.com/news/2012-...-is-countersued-by-u-s-over-unpaid-taxes.html​

A whole bunch of money to the Feds....

 

[CALRepublic]

This is really bad news for all the fractionals, because if the IRS beats Netjets in court, they will go after the other frax.

And here's the thing, if Netjets can't afford to eat this, the other fractionals sure as hell CANNOT. The IRS might deliver a huge blow to the fractional industry should they win this case

 

[gret]

Hurts frac's and a/c mgmt companies.

The mgmt companies may have an out by using a client credit card for all fuel, mtx, hangar, etc. Still would have to deal with dispatch, crewmembers, etc costs. Mgmt fee will be taxable, but compared to the pass thru costs, it is nothing. Not an option for fractional companies.

Major blow for both...where is the cash going to come from for past due taxes? Big numbers.

If I read the NJ article correctly, their bill is up to almost $1 billion.

 

[gunfyter]

This is good for the economy. When the rich pay more taxes ... We can all get jobs as fries cooks after this....

 

[t-bone]

Would this be an equivalent tax to the FETs I believe 135 operators have been paying?

 

[DieselDragRacer]

Next thing you know Occupy Wall St will protesting at FBO near you.

 

[gunfyter]

You shouldn't have to pay a ticket tax to fly on your own plane.

What's next? Pay Hotel taxes just because your house is as big as a hotel and you have maids and staff working for you?

 

[gret]

Agree...and you should haven't to pay estate taxes when you die or give something to your children or friends over a certain amount, while if you give it to a charity, you get to deduct it...simply a way for the government to generate revenue and it never makes sense.

The argument about owning the plane doesn't work because if you own stock in an airline, you own a piece of the plane. It is nuts.....

 

[gunfyter]

You don't have operational control .... you are not the owner.

 

[gret]

Not saying it is right, it is just how they look at it. They are saying an owner with an interest in an a/c flown with a mgmt company or frac doesn't have control either and are paying someone else for transportation and therefore they want to tax it. They don't care what the FAA rules are, they have their own.

Horrible situation.

 

[landlover]

so if you own the airplane and have your own people in place to take care of the airplane, i.e. your own flight department. Do you avoid the tax?

 

[gret]

yup...if you structure it properly. Solving the tax problem doesn't mean you haven't created others. Having your own flight department may increase other costs which exceed the tax savings.

Meeting the Part 91 rules isn't easy in many cases. Just because you have not been caught yet, doesn't make it right. Cost allocations within headquarters can mess up a perfect Part 91 department and you may not even know it is happening.

 

[gunfyter]

All the more reason for the Fair Tax ....

But I still disagree on airline stock shareholders considered owners. They can not be sued if there is a crash with liabilities for the damages.

 

[hammer2]

Next thing you know Occupy Wall St will protesting at FBO near you.

Why not! Detroit city has homeless people wondering through the FBO, they'd fit in perfectly.

 

[AftCG182]

Why not! Detroit city has homeless people wondering through the FBO, they'd fit in perfectly.

More than one of my female F/O's has refused to leave DET property, even to get lunch...

 

[rajflyboy]

Gret

are you Cheatin on your taxes again?

 

[X-rated]

The argument about owning the plane doesn't work because if you own stock in an airline, you own a piece of the plane.

If owning common stock in an airline means you personally own a piece of the airline's airplanes, you should be able to write off a portion of the depreciation of "your airplanes" on your personal tax return.

Owning common stock in a company does not give you fractional ownership of the companies assets. If it did, airline's could sell every passenger one share of stock and issue a stock certificate as a mandatory ID/Frequent Flyer card. Bingo, no more pt 121. The airlines would all be Subpart K.

 

[SCT]

So can a fractional owner be sued (and of coarse anyone can be sued) for an accident on his/her plane when he/she was not on their plane?

 

[luckydog]

Absolutely! That's why most (not all) contract names are corporations, trusts, or end in LLC.

So can a fractional owner be sued (and of course anyone can be sued) for an accident on his/her plane when he/she was not on their plane?

 

[gret]

If owning common stock in an airline means you personally own a piece of the airline's airplanes, you should be able to write off a portion of the depreciation of "your airplanes" on your personal tax return.

Owning common stock in a company does not give you fractional ownership of the companies assets. If it did, airline's could sell every passenger one share of stock and issue a stock certificate as a mandatory ID/Frequent Flyer card. Bingo, no more pt 121. The airlines would all be Subpart K.

You could if it was a pass thru entity for tax purposes such as a partnership or LLC. An airline is a "C corp" and the depreciation and taxes are handled at the corporate level, it does not pass thru to the shareholders.

Frac owners (via their special purpose entities) take title in a specific aircraft even though they may not fly on that specific a/c. That is the difference, which is form over substance, with an airline shareholder.