NBAA and NATA jointly praised the U.S. Internal Revenue Service for releasing a long-awaited notice of proposed rulemaking (NPRM) outlining the agency’s approach to taxation of management fees, but the associations expressed a number of concerns about the details of that approach.

The IRS released the proposal last summer, implementing a measure in the 2017 Tax Cuts and Jobs Act that specifies that certain management fees are not taxable as commercial air transportation.  While the industry was encouraged by the congressional measure, initial IRS guidance left open a number of questions. The NPRM is intended to clear up those questions and settle an area of taxation that has been murky and led to numerous audits and hefty proposed levies on aircraft management firms.

“We thank the IRS and the Department of the Treasury for their work on this important rulemaking, especially in light of the challenges stemming from Covid-19,” said NBAA president and CEO Ed Bolen. “Our industry secured a significant victory for aircraft owners and management companies through tax reform, and we look forward to working with the IRS on a final rule that provides clear guidance and follows congressional intent.”

“We are encouraged by the IRS response to our request for clarification of the tax exemption for aircraft management services,” added NATA president and CEO Timothy Obbitts. “This rulemaking represents another milestone in our successful campaign to ensure appropriate application and understanding of the tax laws.”

Obbitts stressed the importance of obtaining specific guidance to enable aircraft service providers to comply with tax law.

The associations agreed that the NPRM cleared up a number of questions but, in comments to the IRS, said more needed to be done to ensure the final rule more accurately reflected the intent of the congressional measure. As such, NATA and NBAA requested a dialog with the agency to clear up these issues.

One of their primary concerns surrounded the IRS’s definitions of aircraft leases. They asked the agency to broaden the definition of the aircraft leases exempt from the commercial air transportation tax, noting that aircraft owners and operators use a wide variety of lease structures. The IRS should provide more flexibility to ensure common lease types are not unintentionally disqualified from the exempted status, they added.

In addition, the associations asked for modifications around the treatment of owner trusts and clarifications surrounding exemptions for owners, regardless of whether their aircraft are used for Part 135 or 91 operations. NATA and NBAA also asked for reasonable documentation standards and for clarification surrounding the liability of uncollected taxes when a broker is involved.