The National Business
Aviation Association this week filed an amicus brief urging the U.S.
Supreme Court to review a Fifth Circuit decision on the IRS’s
incorrect assessment of federal excise tax (FET) on management fees
paid to fractional aircraft providers.
In the 2016 decision,
the Fifth Circuit upheld a ruling that monthly management fees
charged by FlexJet, once owned by Bombardier Aerospace, were subject
to FET.
When Bombardier last
year appealed the Fifth Circuit’s decision, asking the full court of
appeals to reconsider siding with the IRS, NBAA filed an amicus
brief supporting the company. The Fifth Circuit denied that request,
and Bombardier is asking the Supreme Court to hear the case.
NBAA’s amicus brief
now, as then, argues the IRS never provided precise guidance to
fractional programs on the application of FET to aircraft management
fees.
“Like sales
tax, FET is a tax vendors collect from their customers and remit to
the IRS. Vendors, including fractional providers, need clear
guidance on whether they owe the tax or not,” said
Scott O’Brien,
NBAA senior manager of finance and tax policy. “When it comes to FET
and aircraft management fees, the record shows IRS has not been
clear or consistent.”
The original tax
assessment against Bombardier/FlexJet in 2004 contradicted the IRS’s
earlier technical advice to FlexJet’s competitor, NetJets. In a 1992
memo to NetJets, the IRS had stated that FET was not due on monthly
management fees. More recently, in a 2015 case involving NetJets, a
U.S. District Court found “a mountain of undisputed evidence”
supporting the conclusion reached in the 1992 memo that management
fees are not subject to FET.
NBAA’s amicus brief
to the Supreme Court argues that “the Fifth Circuit’s holding in
this case will disrupt the aviation industry. It leads to
significant business challenges and disparate treatment among direct
competitors in the industry.” Now that Bombardier has asked the
Supreme Court to hear the case, the government has the opportunity
to submit a brief of its own. The Supreme Court’s term usually
concludes by July of each year.
“This case pertains
to management fees for fractional programs, where FET is being
assessed retroactively,” said O’Brien. “It’s distinct from, but
related to, the equally improper application of FET to whole
aircraft management companies.”
Earlier this year,
NBAA welcomed bipartisan legislation in the House and Senate that
finally makes clear aircraft management services are not commercial
aviation. Learn more about that legislation.
“NBAA is continuing
to work with Congress, the IRS and the Treasury Department to
resolve the confusion surrounding the applicability of FET for
aircraft management companies,” said O’Brien, “and we are supporting
this bill that finally does that.” |