The Internal Revenue Service (IRS) regulations regarding exemptions from excise taxes for managed aircraft announced last week are now in effect, following a multi-year effort by the National Air Transportation Association (NATA) and other industry stakeholders to ensure aircraft management services were not considered taxable air transportation.
“Publication of these regulations provides needed clarity and is a critical step to ensure our members can continue to offer management services to aircraft owners without unintentionally triggering commercial taxes for those owners,” stated NATA Senior Vice President Ryan Waguespack.
Beginning in 2013, guidance from a controversial IRS analysis memo caused NATA members providing aircraft management services to face enormous economic jeopardy as the IRS sought to collect, in some cases retroactively, excise taxes on amounts aircraft owners paid for management services.
Following the memo’s release, NATA joined with the National Business Aviation Association to request the placement of the aircraft management exemption on the IRS Priority Guidance List. The IRS agreed the issue was significant enough to warrant placement on the list.
NATA’s efforts ultimately led to language in the 2017 Tax Cut and Jobs Act specifying that commercial excise taxes do not apply to an aircraft owner’s management fees or services, prompting a need for the IRS to update regulations to reflect the new law. The proposed rules published in September 2020. NATA and NBAA, together with numerous association members, crafted detailed comments in response.
“Reading the final rules makes it is clear that the IRS not only reviewed our comments, but the staff was also persuaded by our arguments and included many of our proposed changes in the final version,” added NATA President and CEO Timothy Obitts. “Despite challenges created by the pandemic, the IRS remained focused on bringing this rulemaking to a close. The new regulations offer our industry necessary clarity to move forward with confidence.”
Due to the limited scope of this rulemaking and the potential to impact other aspects of the industry (such as the airlines), the IRS was unable to fully resolve NATA’s concerns regarding verification of the source of payments and tax collection and remission roles when a broker is involved in a charter. However, the IRS agreed these are important issues worthy of additional collaboration though a new guidance project.
“We are exceptionally proud of the strong working relationship we have established with the Department of Treasury and IRS throughout this project. Many of the same staff have worked this issue since it came to a head in 2013. We look forward to continued engagement to resolve these remaining questions,” concluded Waguespack.
