Chief Counsel Memorandum No. 201210026 was released on March 9, 2012. The Memorandum appears to broaden the applicability of Federal Excise Tax (FET) to arrangements where an FAR Part 91 operator retains a manager for its aircraft and/or retains an FAR Part 135 Air Carrier to place the aircraft on the Air Carrier Certificate for aircraft charter.
The Memorandum focuses on the factors involving “possession, command and control of the aircraft” and describes three scenarios involving an owner hiring a management company for Part 91 operations, an owner hiring a management company for Part 91 operations and allowing additional related entities that are not members of the affiliated group to use the aircraft and an owner allowing the management company to operate the aircraft for charter services when the owner is not using the aircraft.
The Memorandum specifically indicates control of pilots as a factor in determining possession, command and control, along with other factors.
The IRS concluded in each situation that FET was applicable as the manager/charter air carrier had possession, command and control of the aircraft and is providing taxable transportation to the owner. The amount subject to FET would include management fees.
The Memorandum is fact-specific. It is recommended that FAR Part 91 Management Agreements and/or Air Carrier Charter Management Agreements be reviewed in light of the position being taken by the IRS in the Memorandum.