While this guidance is technically non-binding and not to be cited as precedent, it does represent the opinion of the Commissioner of Internal Revenue and therefore the revenue agents that will carry out his will.  So, what does this mean to you, the aircraft owner, in practical terms?

The key to whether a management company is providing taxable transportation services hinges mostly, though not exclusively, on whether they are providing pilots.  It is of course impossible to transport anyone anywhere without a pilot, and as such the Service is now inclined to view companies that serve as “one stop shops” for operating an aircraft as providing transportation services subject to the tax.  This also means that this guidance is less likely to apply to owner-flown aircraft.  The same rationale applies – if you are flying your own plane, you may contract for fuel, repairs and maintenance and other services, but certainly not “transportation” without a pilot.

Now, if you are a Part 91 operator and currently have a management agreement in place that provides all of the essentials for operating a plane this authority could more closely apply to you.  One option is to hire or contract for your own pilot from a source other than the management company, which would fit you more closely to the owner-flown scenario above.  Other alternatives include contracting for services from multiple sources, rather than a single management company, though this presents additional administrative and managerial burdens in having to buy from multiple places.  There are a number of other options for structuring your operations so as to minimize, if not eliminate, the potential excise tax burden on your operations.  Please call us for a consultation to discuss your options.

- Ari Good, JD LLM

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.

September Overview:
o Approaching crunch time for 2012 delivery outlook
• Order activity for the remainder of the year, particularly Q4, will be critical for determining whether next year’s deliveries will meet estimates
• Analysts forecast a 20% increase off the bottom in 2012, but this will require a pickup in demand that has been slow in coming and confined to the larger segment of the market
o Used market trends flipped in August
• Last month saw higher prices and higher inventories, the opposite of what has been observed for most of the year
• The increase in prices is a positive sign and the bump up of used inventories may be a reflection of broader economic weakness, but one data point is not enough to determine that the trends are changing
o Used jet inventories increased by 20 bps
• Inventories for sale as a percentage of the active fleet increased to 10.5% in August
• By category, Heavy (+0.3%), Medium (+0.1%) and Light (+0.2%) jet inventories were all up from the prior month
o Average asking price increased 0.2%
• Average price rose to $10.64MM in August, and is down 6.4% y/y
• Heavy jet prices decreased 0.3%, while Medium and Light jet prices increased 1.1% and 1.6%, respectively

The most updated figures (for flights taken between 7/1/11 -12/31/11):

Period During Which the Flight Is Taken

Up to 500 miles = $.2395 per mile
501-1500 miles = $.1826 per mile
Over 1500 miles = $.1756 per mile

Terminal Charge = $43.79

These charges are calculated for that group of miles and added together, so, for example, a 1000 mile flight will require calculating (500 miles x $0.2395) plus (500 miles x $0.1826). The more you fly, the better the deal (sometimes).

There is also a “terminal charge” that is updated twice a year. For the second half it is $43.79 per SIFL-qualified flight.

(Updated 10/03/2011)
Source: Rev. Rul. 2011-21, 2011-40 IRB 458, 09/30/2011

The taxpayer can use these Guides to his advantage in several ways. Naturally it is always helpful to have your opponent’s playbook before the game. While an auditor might not be bound strictly to the principles in the Guide (it is advisory rather than mandatory), you can point to its guidelines if there are points of disagreement as to what the auditor wants to review or the scope of the audit. Always remember, too, to verify that the years to be examined are not closed (generally tax years more than 3 years absent fraud and with timely filed returns). You can similarly point to the Internal Revenue Manual (I.R.M.) as “persuasive” authority that you are correct on a particular point of tax law.

With that background, the Service has recently updated its guides for audits of Attorneys and Business Consultants. One particular area of interest is in the Attorney guide on the subject of attorney-client privilege. The guide correctly recognizes that an attorney and his or her client have the right to assert this privilege against the IRS. The Service may be able to overcome this privilege in some cases by issuing a summons, if there is evidence of fraud or in criminal matters. The tax attorney must carefully review the information to be produced, however, consistent with his or her ethical obligations to his clients, and insist that the Service strictly adhere to its procedures for issuing summons to acquire protected communications. The Service may not audit an attorney as a fishing expedition for information about the attorney’s clients.

As a tax attorney I often represent other professionals against the IRS and Florida Department of Revenue in federal income tax, and Florida sales tax, use tax and employment tax audits. If you would like more information about defending your legal rights in this area please visit me at http://www.goodattorneysatlaw.com/tax.html.

For the IRS Attorney Audit Technique Guide see http://www.irs.gov/businesses/small/article/0,,id=241098,00.html

Now, no one can argue that a 100% writeoff is a bad deal. In fact, it is nearly unprecedented in that under present law there is no ceiling on the amount that can be depreciated. So, as far as “corporate jets” are concerned, it is certaintly nice to have.

Here’s the problem, though, one of many: Exactly how many “corporate jets” are there relative to the amount of capital equipment that is placed in service every year? The bonus provisions are not a corporate jet anything – they will apply to most new purchases of business equipment, perhaps backhoes, vehicles, manufacturing equipment and so on – perhaps the very equipment needed to provide those “shovel ready” stimulus jobs which never showed up. The issue has been framed purely for political purposes: to create the idea that somewhere in the tax code lies a provision hand-crafted and narrowly tailored to give a huge writeoff to “corporate jet” purchasers at the expense of everyone else.

Second, the bonus provisions apply only where the property to be depreciated is “first used” by the taxpayer – i.e. new. There remains a large inventory of used aircraft of all sizes, jets and otherwise, and prices remain largely flat. In terms of the number of units sold the “corporate jet” loophole is smaller than many believe.

This all, of course, sets aside the real damage, which is to the image of general aviation in general, one of the few remaining bastions of American manufacturing. U.S. aircraft manufacturers, and the people that work for them, face more foreign competition than ever from sleek foreign competitors.

Perhaps it’s obvious to point out that this is not about fairness. Rather, it is about cynically pressing buttons designed to inflame and exaggerate classic us versus them cliches. No issue is one-sided, but a little truth wouldn’t hurt.