Determining The Impact Of New Federal Excise Tax Rules

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Business Aviation Partner John Hoover joined the National Business Aviation Association (NBAA) News Hour to discuss the impact of new federal excise tax (FET) rules. Final rules from the IRS provide aircraft management companies and owners much-needed clarity on their federal excise tax (FET) obligations but, taxpayers must carefully review the rules to determine how they apply to specific aircraft ownership and operating structures. Mr. Hoover highlighted the importance of carefully drafting aircraft lease agreements for purposes of the FET exemption.

“One structure that causes me concern is the single-member LLC that owns an aircraft,” said Mr. Hoover. “If that single-member LLC draws up a lease to me, then I’m deemed the owner and I can hire management services and qualify for the FET exception, but if I forget to draw up the lease and then hire a management services company, I’m not a deemed owner because the single-member LLC is the owner, and I’m not a lessee as I didn’t draw up a lease, so there is a concern that in that structure I may not qualify for the FET exception.”