Client Alert
IRS Issues New Proposed Regulations for Aircraft Management Companies

August 10, 2020

The IRS has issued Excise Taxes; Transportation of Persons by Air; Transportation of Property by Air; Aircraft Management Services, proposed regulations relating to federal excise taxes for aircraft owners that utilize aircraft management companies. These proposed regulations, if finalized, would expand on the Tax Cuts & Jobs Act (TCJA) provision that codified that certain amounts paid by an aircraft owner to an aircraft management company are not subject to the excise taxes imposed by Section 4261 or 4271.

In summary, these proposed regulations:

  • Address exemptions for certain aircraft management services fees;

  • Amend, revise, redesignate and remove outdated/obsolete provisions of existing regulations;

  • Update existing regulations to incorporate statutory changes, case law and other guidance;

  • Withdraw and then re-propose a provision from a prior notice of proposed rulemaking that was never finalized;

  • Impact individuals who provide air transportation of persons and property, and those who pay for those services.

Some key takeaways from these regulations include clarifying that:

  • The “Possession, Command, and Control Test” is not relevant to the application of the exemption codified by the TCJA in Section 4261(e)(5).

  • Payments by certain closely related parties shall not be considered as though made by the aircraft owner for purposes of applicability of the exemption in Section 4261(e)(5).

  • Choice-of-flight rules (i.e. – FAR Part 91 or Part 135) do not affect the application of the exemption in Section 4261(e)(5).

  • Whether an aircraft owner permits its aircraft to be used for for-hire flights (i.e. – third-party charter) does not affect the application of Section 4261(e)(5) to amounts paid by the aircraft owner for aircraft management services.

  • The method or manner by which an aircraft owner is billed for aircraft management services (e.g. – monthly fees, hourly fees for each hour of flight time, billed at cost plus a mark-up, etc.) does not affect whether the exemption provided for in Section 4261(e)(5) applies to amounts paid for those services.

The IRS is accepting written and electronic comments on the proposed rules until September 29, 2020.

The above takeaways address some of the most frequently asked questions by the business aviation community. The proposed regulations elaborate further on the above and address additional items. Please do not hesitate to contact a member of GKG Law’s Business Aviation team with questions about these proposed rules as they relate to your business needs and decisions. We would be happy to advise or to assist in drafting and submitting comments.

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