Reinstatement of Federal Transportation Excise Taxes

August 8, 2011

As you all know from reading our prior client alert, Congress failed to extend federal excise tax legislation prior to July 22nd, and it expired at midnight on July 22, 2011. On August 5, 2011, the Senate passed the House Bill (H.R.2553) to extend federal excise taxes until September 16, 2011, and the Bill was signed by President Obama. The reinstatement is retroactive to July 23, 2011 at 12:01 a.m.

On August 5, 2011, the IRS issued a press release stating that since the reinstatement of the federal excise tax was retroactive, there would be no refund of federal excise taxes on tickets bought before the expiration on July 23rd for flights after that date. Accordingly, neither air carriers nor the IRS will issue refunds to passengers for such tickets. Additionally, the IRS stated that airlines have a grace period from Saturday, July 23rd, through Sunday, August 7th, during which time they will be granted relief with respect to federal excise taxes that were not collected due to the lapse in the federal excise tax legislation.

The IRS does intend to provide further guidance to airlines which will allow for an orderly restart of the collection of federal excise taxes and to address other unanswered questions. Airlines have until 12:01 a.m. on today’s date, Monday, August 8, 2011, to resume collection of federal excise taxes.

Federal excise taxes are currently set to expire again on September 16, 2011. Stay tuned for more information.

This Client Alert is a source of general information for the readers thereof. Its content may not be construed as legal advice. No reader of this Client Alert should act on the information contained herein without consulting competent counsel to advise such reader regarding matters relating hereto.

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this client alert is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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