IRS Scrutinizing Charter Air Broker Involvement in FETs

The IRS has been scrutinizing the collection of federal excise taxes (FETs) when brokers are involved, business aviation tax expert Nel Stubbs said, and she advises operators and brokers to clearly spell out collection responsibilities in their contracts. Speaking during the Conklin & de Decker/NATA Commercial Operators Tax Seminar yesterday in Chantilly, Va., Stubbs noted that as the Department of Transportation delays development of charter broker regulations, the IRS “is already looking at brokers.” 

For years, the DOT has been working on a rule to potentially establish a registry and regulate brokers from an economic standpoint. The rule is intended to provide traceability and accountability for charter brokers. In the interim, however, Stubbs stressed that operators and brokers must work closely together. She pointed to confusion between brokers and operators about FET collection and remittance responsibilities.

The IRS will look first at brokers who collect FETs to ensure proper remittance, she said, but the operator is secondarily liable. She also cautioned that unless separated out by the broker, commission counts toward the amount subject to the air transportation tax. This can put operators who remit FETs at a disadvantage if they are unaware of the commission total added to charter price. Other problems arise when either a broker or operator goes out of business before the taxes are remitted or fails to remit the taxes altogether. Stubbs pointed to the case of Wayne Rizzi, the former Air Royale International owner who is serving prison time for failing to remit collected FETs.