Story ID: 764FlexjetBombardier
Court Denies Request in Flexjet Bombardier Lawsuit
By: Kerry Lynch
Caption: Appeals decision remains at odds with previous court ruling on aircraft management fees.
Word Count: 375
The U.S. Court of Appeals for the Fifth Circuit has denied Bombardier’s request for an en banc review of its case against the IRS over taxes assessed for management fees charged to customers of its then Flexjet operation. Bombardier had requested a full court review after a three-judge panel at the Fifth Circuit determined that the IRS properly taxed fractional operation management fees as commercial air transportation activities.

Bombardier originally filed the lawsuit in 2012, disputing tax levies that the IRS had applied to activities in 2006 and 2007, before Congress clarified that fractional operation management fees were not taxable as commercial air transportation activities. A District Court ruled in favor of the IRS in March 2015 and the appeals court agreed with the lower court’s determination on July 25.

NBAA had filed an amicus brief urging the court for the en banc review, saying the panel’s decision conflicts with a previous Supreme Court decision and that the case is of “exceptional importance as it could result in disparate collection obligations imposed on similarly situated taxpayers.”

The courts had previously ruled in favor of NetJets in its own dispute with the IRS over taxation of management fees. “It’s not fair for different companies such as NetJets and Flexjet to get conflicting tax obligations,” said Scott O’Brien, NBAA senior manager of tax and finance policy. Noting that the IRS has provided inconsistent treatment of the fees over the years, O’Brien added that the recent decision makes it “hard to understand not only what the IRS thinks of these rules, but also the courts.”

NBAA is continuing to work with Bombardier to evaluate options, which could include appealing to the U.S. Supreme Court.

While Congress has settled the treatment for management fees going forward, the issue is still in limbo for management companies. The IRS has long been working on finalizing guidance, and has been watching cases such as this one—even though it involves fractional operations.

“Holding fractional providers and aircraft management companies liable for these retroactive taxes is not fair and will have a devastating impact on business aviation,” O’Brien noted when NBAA filed its amicus brief.