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The U.S. Supreme Court has given the Internal Revenue Service until April 19 to respond to Bombardier’s request for review of its case over the taxation of management fees.
Bombardier on February 19 asked the Supreme Court to review its case, contending that the IRS inappropriately assessed commercial air transportation federal excise taxes to management fees charged by Flexjet, its former fractional operation.
The company turned to the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit denied Bombardier’s request for a full-court, or en banc, review of its case against the IRS. A three-judge panel at the Fifth Circuit had previously agreed with a lower court ruling that the IRS properly taxed fractional operation management fees as commercial air transportation activities.
Bombardier argued that the Appeals Court decision conflicts with past Supreme Court and other court findings, and said a review is necessary to “clarify important tax rules governing the aviation industry and to reaffirm that the IRS must provide clear, non-speculative and uniform guidance to tax collectors before it may hold them secondarily liable for uncollected taxes.”
Both the National Air Transportation Association (NATA) and NBAA have backed Bombardier’s lawsuit with amicus briefs that echoed those arguments, noting that the IRS has provided inconsistent rulings. The Appeals Court decision further creates an unfair competitive situation, since NetJets is not required to collect the tax, the associations added.
The case also has drawn an amicus brief from Flexjet’s current sister company, Flight Options, and fractional operator PlaneSense.
The fractional operators were filing the brief, the companies told the court, “because the IRS has failed to provide clear and non-speculative notice to companies in the industry of their tax collection.”
The companies further echoed arguments that the IRS has provided conflicting guidance and treated competing companies in the same industry differently. “This unfair and disparate treatment gives preferential treatment to select companies in the industry, while refusing to afford similar treatment to others in the same industry,” the PlaneSense and Flight Options brief contends. “Though PlaneSense is a beneficiary of the disparate treatment in the short term, it is, together with the industry as a whole, at a long-term disadvantage because of the unclear and contradictory guidance provided by the IRS.”
Since Bombardier’s case involves management fees associated with fractional operations, it is separate from the industry’s quest for clear guidance over the tax treatment of fees involved in whole aircraft management operations. But, Scott O’Brien, senior manager of finance and tax policy at NBAA, notes, “In my view, it is generally bad for our industry to be in a position where management fees [that don’t involve movement of the aircraft] are subject to air transportation excise taxes.”
The IRS has been working on guidance on whole aircraft management fees for the past several years, but progress has been so slow that industry leaders believe that Congress may ultimately need to address the issue.
Fractional operators PlaneSense and Flexjet affiliate Flight Options have joined the industry groups supporting Bombardier in its campaign to halt the assessment of commercial air transportation federal excise taxes (FETs) on management fees collected in fractional operations.
Bombardier on February 19 asked the U.S. Supreme Court to review a case that involved the decision of the IRS's decision to collect the FETs on management fees collected by Flexjet charged during a period when Bombardier owned the fractional operation.
The company turned to the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit denied Bombardier’s request for a full-court, or en banc, review of its case against the IRS. A three-judge panel at the Fifth Circuit had previously agreed with a lower court ruling that the IRS properly taxed fractional operation management fees as commercial air transportation activities.
Bombardier argued that the Appeals Court decision conflicts with past Supreme Court and other court findings, and said a review is necessary to “clarify important tax rules governing the aviation industry and to reaffirm that the IRS must provide clear, non-speculative and uniform guidance to tax collectors before it may hold them secondarily liable for uncollected taxes.”
Both the National Air Transportation Association (NATA) and NBAA have backed Bombardier’s lawsuit with amicus briefs that echoed those arguments, noting that the IRS has provided inconsistent rulings. The Appeals Court decision further creates an unfair competitive situation, since fractional provider NetJets is not required to collect the tax, the associations added.
The case also drew an amicus brief from, Flight Options, and fractional operator PlaneSense. The fractional operators told the court they filed the brief were filing the brief, the companies told the court, “because the IRS has failed to provide clear and non-speculative notice to companies in the industry of their tax collection.”
The companies further echoed arguments that the IRS has provided conflicting guidance and treated competing companies in the same industry differently. “This unfair and disparate treatment gives preferential treatment to select companies in the industry, while refusing to afford similar treatment to others in the same industry,” the PlaneSense and Flight Options brief contends. “Though PlaneSense is a beneficiary of the disparate treatment in the short term, it is, together with the industry as a whole, at a long-term disadvantage because of the unclear and contradictory guidance provided by the IRS.”
The Supreme Court gave the IRS until April 19 to respond to the filing.
Since Bombardier’s case involves management fees associated with fractional operations, it is separate from the industry’s quest for clear guidance over the tax treatment of fees involved in whole aircraft management operations. But, Scott O’Brien, senior manager of finance and tax policy at NBAA, notes, “In my view, it is generally bad for our industry to be in a position where management fees [that don’t involve movement of the aircraft] are subject to air transportation excise taxes.”
The IRS has been working on guidance on whole aircraft management fees for the past several years, but progress has been so slow that industry leaders believe that Congress may ultimately need to address the issue.