NAFA member Air Law Office, P.A. discusses the latest Federal Excise Tax ruling.
The IRS has issued its final rule regarding the 7.5% Federal Excise Tax (“FET”) on owner flights. The issue arose after the passage of the Tax Cuts and Jobs Act, which left ambiguity on whether FET is due when owners conduct flights on their own aircraft with a management company’s assistance.
The IRS final rule, which adopted many NBAA-suggested provisions that eliminate potentially confusing language in the proposed rule and provide clear standards for taxpayers and the government.
Noncitizen Trusts or Owner Trusts have been in the news a lot lately. Good news for such owners, the final IRS FET rule confirms that owner trust arrangements are covered by the FET exemption.
Also, the rulemaking abandons a proposal to expand the definition of leases disqualified from the FET exemption, which would have severely limited the exemption’s application to many common aircraft-ownership structures.
Additionally, the IRS abandoned a complicated allocation method that would have been required when owners take flights on a substitute aircraft and instead clarified that owners qualify for the FET exemption regardless of whether they conduct flights on their own aircraft under Part 91 or Part 135.
This article was originally published by Air Law Office, P.A. on April 1, 2021.
