The National Business Aviation Association (NBAA) and the National Air Transportation Association (NATA) asked the Internal Revenue Service (IRS) to continue the reform of Federal Excise Tax (FET) regulations by addressing unclear and confusing rules covering the collection responsibilities for air charter operators and brokers.
After a years-long advocacy effort led by NBAA and NATA, the IRS, at the beginning of 2021, issued final rules on FET obligations for aircraft management services paid for by aircraft owners. The final rule also referenced regulations on payment and collection of FET, an issue raised by NBAA and NATA in their comments, but the agency suggested a separate rulemaking project to address those concerns.
“While we understand and appreciate that the final rules did not address these changes due to their broad implications for industry, the issues are still critical for our members,” NBAA and NATA said in a Jan. 28 letter to the IRS. “We believe that existing regulations and guidance regarding FET collection responsibilities under § 4291 and liability for unpaid FET on audit under § 4263(c) are unclear and create confusion for taxpayers and the IRS,” the associations added.
NBAA and NATA, in their letter, noted that current IRS rules do not sufficiently explain FET collection responsibilities for transactions involving charter brokers. The groups explained that a rule placing the responsibility to pay FET on the air carrier providing the initial flight segment, if FET was not collected from the passengers by a broker, is unreasonable. “This obligation on the air carrier’s part to pay the tax if the party responsible for collecting it fails creates confusion and unfair liability exposure for the air carrier in instances where a broker is collecting payment from the passenger,” NBAA and NATA explained.
“We have developed a strong working relationship with the IRS and are eager to work on regulations or guidance to provide much needed clarity on tax collection and remission roles when brokers are receiving payment for the transportation from passengers,” said Jacque Rosser, NATA senior advisor, regulatory affairs.
As a first step in approaching these complex issues, the groups requested an initial meeting with IRS officials to discuss how guidance or a rulemaking project could progress. “We appreciate how the IRS engaged with industry on the most recent FET rulemaking and look forward to working collaboratively on issues related to lability and collection of the tax,” said Scott O’Brien, NBAA senior director of government affairs.