Story ID: 
AINsight: Three Top Issues in Charitable Flights
By: David G. Mayer
Caption: Many find navigating the legal and tax issues are more than worth it for charity flights
Word Count: 2047
Fighting a serious health condition like cancer is horrendous, but it gets even worse when the cancer patient can't travel to see the right doctor—a doctor who may not be across town but across the country. Rising to this great need, many private aviation individuals and corporate owners, lessees, pilots, and operators—flight partners—provide a free flight on their aircraft to those who face the physical, emotional, medical, or financial burden of traveling long distances for specialized medical care.
Multiple “qualified organizations” (i.e. charities) facilitate these partner flights. Often called “charitable organizations,” in the U.S. they must satisfy the criteria under Section 501(c)(3) of the Internal Revenue Code (IRC) to be a tax-exempt entity. These charities, which have separate program models, include the Corporate Angel Network (CAN), for cancer patients; Angel Flight, for medical and disaster relief patients; and Patient AirLift Services (PALs), for medical patients.
CAN proudly announced last month at NBAA-BACE that it has coordinated 70,000 flights for cancer patients since its founding. I lost both of my grandfathers to cancer just as I was old enough to ask about their stories and some of my parents’ unspoken childhood exploits. Thinking of my grandfathers, who did not have today’s care options, I feel privileged and grateful to have become an “ambassador” for CAN.
When I shared my enthusiasm for this CAN role with friends and colleagues at NBAA-BACE, the conversation quickly shifted from their awareness of the charities to tax write-offs for partner flights, company liability risks, and FAA scrutiny of these flights and their pilots. In a discussion at Corporate Jet Investor Miami last week, an attendee said he “would love to pilot a mission” but did not know where to start.
How Partner Flights Take Off for Charities
About partner flights. Some flight partners arrange flights by allowing medical patients and their caregivers to use empty seats or fly on empty legs in their aircraft. Other flight partners—often volunteer pilots—offer their own aircraft to transport medical passengers to the designated hospital or other care center. Through an application process, the charities apply their guidelines to prospective flight partners and patients for partner flights. Once approved, the charities arrange logistical and other support to help get the medical passengers on board when a flight partner has capacity.
Ease of becoming a flight partner. You can contact a charity through its website or by calling your preferred organization—such as CAN, Angel Flight, or PALs—for assistance. The dedicated and knowledgeable staff can guide you through every step of becoming a flight partner. Typically the process involves checking the crew, aircraft, and passengers to ensure they meet the charity’s flight guidelines. Charities use a few simple documents to establish the ground rules, including a flight partner participation agreement, medical passenger liability waivers, and confidentiality provisions, among others.
Flight partner tax and legal team. To properly evaluate the agreements and address other legal issues, flight partners should engage a knowledgeable aviation lawyer and tax advisor, if the lawyer does not cover tax, who understands that the IRC intersects with the FARs. They must create a structure that aligns the IRC and the FARs regarding partner flights.
Although the issues may be somewhat complex, Flight Partners should be able to join these philanthropic missions with just a bit more effort than they put into planning their usual passenger flights.
Tax Planning To Maximize Deductions
The IRS is stingy with allowing deductions for “charitable contributions” or for charitable flight expenses.
Federal income tax deductions. Tax deductions for contributions to a charity like CAN fall into one of two categories, but not both: charitable purpose or business purpose.
Generally disallowed deductions. The IRC prohibits charitable deductions for fixed expenses (allocable to a charitable flight) such as depreciation, general maintenance and repairs, pilot salaries, interest expense aircraft fair market value rents, standard insurance, or the contribution of services to the medical passengers or charity.
Generally allowed charitable deductions. The IRC permits tax deductions for out-of-pocket expenses related to charitable flights that are “directly attributable” to the charity. The allowed expenses primarily include hangar fees, fuel and oil costs, pilot fees, rental charges exclusive to the charity, arm’s-length fees for charter flights, and additional flight liability insurance.
Allowed business deductions. If a business can satisfy the IRC requirements, the business can deduct the value of the flight, which presumably far exceeds the deductions for the out-of-pocket costs of a charitable flight. When a flight partner arranges for medical passengers to fill empty seats on a pre-planned business trip, it seems likely that the primary purpose of the flight is business with an incidental charitable benefit to the medical passengers and the charity. To justify a business deduction involving the charity, a flight partner may need to take steps, among others, to promote its image, products, and services through press releases, advertising, and possibly public appearances with the charity and/or medical passengers.
Business expense classification. The IRC does not allow a deduction for activities generally considered to be entertainment, amusement, or recreation (a personal entertainment flight, or PEF). However, a flight partner can, if supportable, classify a partner flight as a business flight. Otherwise, the flight may be classified as a deductible personal non-entertainment (PNEF) flight of an employee. Importantly, the PNEF classification enables the employer to deduct the value of the flight.
Whether a flight partner determines, reports, and classifies a flight as PNEF or PEF depends on the facts of each flight and each passenger on the aircraft. If an employee treats a flight on an employer aircraft as a PEF or PNEF, the employee will, with exceptions, receive income as a fringe benefit subject to income and employment taxes on the flight's value. The value is determined either by the Standard Industry Fare Level (SIFL) method or by the much higher, but seldom used, fair-market-value charter rate. The SIFL rate, updated twice a year, imputes income to employees for PNEF and PEF.
State and local taxes. If you make a payment or transfer property to or for the use of a charity under the IRC and you receive or expect to receive a state or local tax credit or a state or local tax deduction in return, your federal tax deduction for a charitable contribution might be reduced.
Substantiation and documentation. To defend and retain the deductions, whether federal or state, the flight partner should compile detailed contemporaneous flight records, including the dates, individual passengers (categorizing their presence as PNEF and PEF), and employee and “specified individual” names, charity details, and a list of other potentially deductible expenses.
The flight partner should consider creating written travel and charitable giving policies, obtaining board or committee approval for charity-related flights, and/or preparing other written support, such as establishing flight protocols aligned with their intended tax outcome, whether for charitable or business purposes. 
Other than using their routine documents, the charities do not (and should not) opine on or become involved in any tax, legal, or operational aspects of partner flights. They can give a written acknowledgement of the flights that occur. The flight partner can use this substantiation as support for its classification of a business or charitable purpose of the applicable flight.
Before a flight partner’s first charitable flight, at the latest, it should consult with its tax and legal advisors to determine and document whether the flight affords it a business or charitable deduction.
Regulatory Compliance
The FARs generally prohibit any person, including pilots, from “holding out” a willingness “to transport persons or property from place to place for compensation or hire” in a private aircraft without holding an air carrier certificate under FAR Part 119 and operating the aircraft in compliance with Part 135, and/or meeting other requirements. Part 119 does have several exceptions to this prohibition. As a result, flight partners usually operate their charitable flights under private flight regulations (Part 91). Flight partners typically operate charitable flights under Part 91, but seldom, if ever, under Part 135.
FAA conflicting positions. Despite these restrictions, the FAA has relented on enforcement actions, as a policy matter,[i] to support “truly humanitarian efforts.” Still, FAR 91.146, “Passenger-carrying flights for the benefit of a charitable, nonprofit, or community event,” is so limiting that it grounds partner flights with criteria the flight partners cannot meet.
Pilot charitable flights. The FAA allows pilots to fly charitable flights without asserting that they have violated the “no compensation or hire” rules under limited circumstances, including the following:
• The FAA will not treat charitable tax deductions (taken by pilots) related to humanitarian flights, standing alone, as compensation or hire for purposes of enforcement of FAR 61.113(c) (private pilot cost sharing), Part 91 (private flight), or Part 135 (nonscheduled commercial flight).
• The FAA has granted some charities specific exemptions from FAR 61.113(c) that allow pilots conducting flights for those charities to accept limited fuel reimbursement.
• Flight partners and others can compensate or reimburse (via salary or otherwise) ATP- and commercial-rated pilots for providing pilot services on charitable flights where the flight partner, not the pilot, is the operator exercising operational control of the aircraft during the charitable flight.
Despite the latitude afforded to pilots related to flying charitable flights, pilots should use caution to protect their flight privileges and avoid acting as an uncertificated commercial operator.
Risk Management: Privacy: Security, Reputational Risk and Insurance
Flight partners conducting charitable flights must also assess and manage corporate and/or personal liability exposure associated with those flights. To mitigate the risk, one key tool is to maintain general liability insurance. Flight partners should confirm that their insurance policy and associated liability limits adequately cover a charitable flight, as well as ensure the underwriter has approved the mission pilots.
The flight partner should consider providing the charity, or the charity might request from a flight partner, an “additional insured” certificate covering the medical passengers and the charity. In any event, the flight partner should also obtain, and the charity expects to deliver to its flight partner, liability waivers or releases from the charities and medical passengers as one of the documents signed for partner flights. Flight partners who lease or finance their aircraft or use Part 135 operators may also face issues such as giving notice or requesting consents, but it is unlikely that any of these issues will prevent a partner flight.
Unfortunately, providing a partner flight may expose a flight partner to unwanted public awareness that it possesses a business aircraft, despite the aircraft’s use for a charitable purpose. This situation might require a flight partner to plan a meaningful charitable contribution while protecting its privacy, confidentiality, and security, as well as its business tax deductions—tasks that aviation lawyers often confront.
Each flight partner should work with the relevant aviation team members to integrate risk management into aircraft ownership, leasing, tax, crew, and insurance relevant to its partner flights.
Conclusion 
Each flight partner flying business and general aviation aircraft can make a great contribution by transporting medical passengers to specialized care facilities. While potential flight partners might hesitate to offer free flights at first due to legitimate, but manageable issues, that concern is likely to fade once they see the deep gratitude from the charity and passengers for providing a potentially life-saving flight.
Nothing in this blog creates or is an invitation to create an attorney-client relationship or provides legal advice of any kind. Readers should consult their trusted private aviation advisors for transaction and other assistance in matters contemplated in this blog. The opinions expressed in this column are those of the author and are not necessarily endorsed by AIN Media Group. The author wishes to acknowledge the skills, diligence and patience demonstrated by Greg Reigel, a partner at the author’s law firm, in editing the author’s blogs. The venerable John Hover, Holland & Knight LLP (retired), commented on the tax section of this blog.