IRS Issues Favorable Tax Regulations on Management Company Exception to FET

Holland & Knight LLP

Holland & Knight LLP

Over the past few years, the Internal Revenue Service (IRS) has worked to issue final regulations that provide guidance to aircraft management companies and aircraft owners regarding their federal excise tax (FET) obligations.

The final regulations – under Internal Revenue Code § 4261(e)(5) – implement a provision in the 2017 Tax Cuts and Jobs Act (TCJA) that provide an exception to the 7.5 percent FET on commercial air transportation when an aircraft owner pays for management services to support flights on the aircraft.

These regulations represent the successful culmination of a years-long advocacy effort led by National Business Aviation Association (NBAA) and its Tax Committee. Since 2008, the NBAA has been involved with comments to the IRS on all stages of these regulations, culminating with the issuance of the final regulations in January 2021. The NBAA Tax Committee's advocacy effort was led by Holland & Knight Partner and NBAA Tax Committee Chair John Hoover.

Under Mr. Hoover’s leadership, the Tax Committee recently authored an article that provides NBAA members with details of the history of the association's advocacy efforts and provides a complete analysis of the final regulations. In addition, the article addresses common scenarios involving how the exemption treats aircraft owner flights, leases and substitute aircraft.

For more information or questions on the IRS FET exemption rule, contact the author.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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