Tag: aircraft tax

Gulfstream Jet Head On Aviation Attorney

Bonus Depreciation For 2015 Aircraft

Bonus Depreciation For 2015 Aircraft

Gulfstream Jet
Bonus depreciation may still apply

I read an interesting article in Aviation Week about the resilience of the market for the largest business jets.  Their resilience as the aircraft of choice for ultra high net worth individuals, governments and corporations is no surprise.  One reason for this were the long production cycles for these aircraft.  New Gulfstream business jets have always been “built to order” and can take a year or more to complete.  The planes on the assembly line during the crash years of 2008-2009 had been on order for some time before, and there was a healthy backlog of others waiting in line at that time.

The tax benefits for these buyers remains as well.  Aircraft bonus depreciation deductions, which have largely been phased out going forward still applies to certain large business aircraft placed in service prior to January 1, 2015.  This can occur in one of two scenarios, first, if the aircraft is considered “long production property”, or second, if the aircraft otherwise met the requirements for 50% bonus depreciation, part of which required that there was a written binding contract in place for the plane prior to 2014.

Contact me for an analysis of your tax savings.

Ari Good, JD LLM, an aviation tax lawyer is the shareholder of Good Attorneys at Law, P.A. He graduated from the DePaul University College of Law in 1997 and obtained his L.L.M. in Taxation from the University of Florida in 2005. He has helped hundreds of clients to defend themselves against the tax authorities and negotiate their liabilities, and worked with aircraft buyers, sellers and operators in complex tax transactions.

Call us at (786) 235-8371 for detailed information.

Deduct Your Flying Lessons

Deduct your flying lessons:  Can you take a tax deduction for your flying lessons?  The short answer:  yes, but it depends on your situation and the circumstances. To justify such a deduction, a taxpayer must show that the lessons are a reasonable and necessary business expense and not just helpful or useful.  Alternatively, a taxpayer could argue that the lessons are an educational expense necessary for a job that requires private flight.  The pilot must take due care to make these decisions up front so that he has a good defense in the event of an audit. Unlike in most other areas of US law it is the taxpayer’s burden to prove that a claimed deduction is legitimate.

In early 2012, a U.S. Tax Court considered this question and ruled that an experienced commercial real estate broker’s flight lessons were non-deductible.  The broker’s job involved identifying large properties to sell and drafting detailed brochures for prospective buyers.  From 2005 to 2007 he chartered airplanes to assist in finding and evaluating such properties.  During these flights, a licensed pilot flew the airplane while the broker took photographs that were included in the brochures.  To avoid future expenses of chartering flights the broker took flight lessons and purchased a Cessna 172s aircraft to perform the same task.  He subsequently claimed those flight lessons as an expense of $33,000.00 on his 2007 federal income tax return.  When the claimed deduction was challenged in court, however, he could not provide any receipts or invoices documenting the flight lessons, and therefore could not take a tax deduction for those flying lessons.

Deduct your flying lessons
Can you take a tax deduction for flying this big boy?

Upholding the IRS’ determination, the Court found that the broker failed to prove that flight lessons were an educational expense required for the business of a commercial Realtor   The Court concluded that while evaluating properties from the air may be helpful to a Realtor this particular broker had been able to do so earlier without the necessity of actually piloting a plane.  He could not explain why flight lessons were now required in order to view the properties or obtain aerial photographs.  Regarding the claimed business expense, the broker failed to provide evidence that flight lessons are normal, usual, or customary for commercial Realtor.

Adding insult to injury, the Court made a point of saying that the broker had not acted in good faith for claiming the subject deductions and upheld the 20% penalty assessment.  A taxpayer may be penalized if they act negligently or disregard (careless or otherwise) the tax law.  The Court noted that the broker was a sophisticated taxpayer with 20 years of experience as a licensed financial advisor and commercial Realtor   The Court similarly dismissed the broker’s defense that he just relied on professional advice in setting up his airplane structure.   The Court found broker had also erred in failing to keep financial records regarding the cost and purpose of the flight lessons.

These deductibility rules apply not only to the novice aviator but also those with years of flying experience.  As long as a taxpayer can justify the claimed deduction there is no rule barring that person from advancing their education and improving their rating, however, the taxpayer must continue to demonstrate that such expenses are an ordinary and necessary part of his existing business.  Cases in which the pilot deducts flight lessons in preparation for another career (such as moving from a general aviation pilot to an airline or transport pilot) seldom favor the taxpayer.

Careful planning can avoid the pitfalls illustrated above.  Here the deductions were disallowed not because of a “per se” rule against claiming a deduction for flight lessons but because he failed to demonstrate and document the connection between his real estate business and private flight.  The result may have been different, for example, if there was no viable option for sustaining his real estate business other than to fly privately, perhaps if the taxpayer owned real property spread over a large geographical area or in hard-to-reach places.

Consulting with a knowledge and experienced aviation tax advisor will ensure you’re on the right side of tax law (or a court’s opinion).

IRS Federal Excise Tax Surprise – New Rules For Aircraft Management Companies?

IRS Federal Excise Tax
IRS excise tax & aircraft management companies:  and you thought the catering was exempt

The IRS’ new view of federal excise tax on aircraft management services in unwelcome indeed. To recap, in an IRS Chief Counsel Memorandum Re Federal Excise Tax and Aircraft Management Companies, the IRS is taking the position that aircraft services such as hiring and providing pilots and management services, even for part 91 aircraft, are “amounts paid” for “transportation services” and therefore subject to federal excise tax.  This in essence has the potential to raise general aviation services costs by 7.5%, a federal excise tax surprise that neither aircraft management companies nor aircraft owners need in this environment.

It has never been disputed that ” amounts paid” for commercial flights under Parts 121 or 135 are subject to excise tax as “taxable transportation”, and the price and availability of these flights reflect this.  Part 91 owners and operators make a conscious decision to assume more risk in retaining “operational control” of their flights and pay management companies for collateral services in making pilots, fuel and services available.  We could be left under the IRS’ new policy where a private aircraft owner would have to pay excise tax for flights over which he still has full legal liability.  This is clearly a surprise when it comes to federal excise tax, for the owners and aircraft management company alike.

Unfortunately there is also a “gotcha” factor here.  One might conclude that the IRS’ apparent aggressiveness with respect to auditing, and potentially assessing, federal excise tax against aircraft management companies is designed to catch us off guard.  There are a couple of problems with this.  First, a Chief Counsel opinion details the Service’s interpretation of existing law.  It is not equivalent to the Internal Revenue Code, regulations or Tax Court decisions, and therefore forms a questionable basis upon which to set aircraft management companies up for formal federal excise tax audits.  Second, if in time aircraft management companies are deemed to be receiving “amounts paid for taxable transportation” for support services, the industry must be given some reasonable opportunity to adjust to this without facing retroactive application of a brand-new interpretation along with the interest and penalties that go with it.

Call me for a free phone consultation if you think you may be subject to the new federal excise tax rules.  877.771.1131

Aviation Business News – A View From The 2012 FATA Conference

Aviation Business News
A report from the 2012 FATA Conference

For those looking to keep up on Florida’s aviation business news, one of the best events of the year was the 2012 Florida Aircraft Trades Association (FATA) annual conference.  This three day event included aviation business news, recent developments in aircraft sales tax laws, aviation industry outlooks and, of course, golf, dinner and drinks!

Of the many excellent presentations one of my favorites was the “manufacturers’ panel”.  Leaders from Gulfstream, Piper, Cessna, and Embraer talked a little about the state of the aircraft industry and recent sales data.

Dustin Cordier, Regional Vice President for Cessna Aircraft Company, was pleased that in addition to sales of new aircraft being up slightly from last year there is also a robust market in the used aircraft market.  Aircraft between 3 and 10 years old constituted a combined 80% of the near 1000 Cessna transactions that occurred in Q1 2012, with an emphasis on the North American market.

Steve Cass of Gulfstream reported that sales of their largest aircraft continue to improve.  Simon Caldecott of Vero Beach-based Piper Aircraft expressed “cautious optimism” about the remainder of 2012, encouraged by well-improved numbers from the last few years in Piper’s newer models.  Clint Clouatre of Embraer, the “new kid on the block” confirmed everyone’s recognition of the BRIC countries (Brazil, Russia, India and China) as major markets for general aviation aircraft going forward.

Special thanks to lobbyist Eric Prutsman, who worked tirelessly in Tallahassee to bring about positive changes for Florida’s aviation business, such as extending the state “maintenance and repair” aircraft sales tax exemption to aircraft of 2,000 GTOW and smaller, Association President Sandy Showalter for his excellent leadership and consummate skill as the Conference MC, and of course Paula Raeburn, without whom FATA would not be nearly as colorful, effective or fun!

If you’ve never stayed at the Four Seasons Palm Beach, I might add, I absolutely recommend it, and I would also like to thank whatever tech company was there with the same color badges for not throwing me out when I crashed your unbelievable buffet breakfast on the veranda.  Look, it was an accident!

Year End 100% Aircraft Bonus Depreciation

Aircraft Bonus Depreciation
Aircraft bonus depreciation still in sight

From year-end 2011:  “As the holidays approach our thoughts become preoccupied with but one thing: how can I purchase an aircraft and write off 100% of the cost basis in the first year? Well, perhaps not for everyone, but here’s what you need to know: if you purchase an aircraft and place it in service by December 31, 2011 you will qualify for the 100% bonus provision provided you meet all of the other requirements. This is a considerable benefit under any circumstances.

If this is NOT possible, however, and you must place your aircraft in service next year, you are probably still better off than you would have been had you “only” been able to take the 50% bonus. This is because assets placed in service in the fourth quarter of the year do not receive the full first-year depreciation allowance. Your bonus allowance reverts back to 50% for assets placed in service in 2012. By waiting until early next year, you still receive this benefit, but are now able to take the full year MACRS depreciation allowance. In other words, unless the value of your depreciation allowance is considerably greater than it will be next year, you’re better off taking your time and making sure you have done your tax planning carefully, not only at the federal but also at the state – sales tax – level.”

Update 2012:  The good news:  100% bonus depreciation is still with us on qualified aircraft purchases through the end of this year.  What’s “qualified”?  There are several factors, including that you purchase a new (or substantially rebuilt) aircraft, and that you take delivery and place it in service before the end of the year.

The bad news:  This might not be around forever, which as bad news goes is pretty acceptable in my book.