Advanced Personal Use Friday, February 6 1:30 p.m. 3:30 p.m. PRESENTED BY: Alan Burnett, CenterPoint Aviation Law PLLC Tina Kettle, UTFlight Doug Stewart, AircraftLogs Schedulers & Dispatchers Conference San Jose, CA February 3 6, 2015
The Big Picture The FAA limits the ability of an Employee to reimburse the company for personal use of the company aircraft under Part 91, with narrowly limited exceptions The unreimbursed cost of an Employee s personal use of the company aircraft must be included in the Employee s income for federal income tax purposes as a fringe benefit SIFL (Standard Industry Fare Level) is a formula accepted by the IRS as a method of valuing unreimbursed flights The IRS disallows deductions based on personal entertainment use in excess of any: 1) income imputed to the Specified Individual as a fringe benefit for the unreimbursed flight; and/or 2) the amount that the Specified Individual reimburses the company under one of the limited approaches permitted by the FAA The amount of the imputed income and/or reimbursement effectively offsets what would otherwise be a disallowance of depreciation and other deductions 2
Why is this so Bloody Complicated? 3 sets of laws governing from 3 different perspectives Mostly IRS and FAA here, although sales tax planning is often implicated The FAA and IRS don t play well together Business aviation is caught in the middle Personal use is a great example We must fit here 3
Why Do We Care? Employee The value of unreimbursed personal flights must be included as taxable income to the employee as a fringe benefit (SIFL) The economic cost of the income imputed to the Employee (SIFL) is generally lower than the amount of reimbursement Company The IRS limits the company s deductions (expenses and depreciation) for the unreimbursed cost of personal flights not imputed as income (SIFL) Schedulers & Dispatchers Performance of job related tasks CYB (Cover Your Bottom) 4
Three Keys to Personal Use 1. IRS imputation of income as a fringe benefit (SIFL) for unreimbursed personal flights 2. FAA limitations on reimbursement under Part 91 of the FARs 3. IRS disallowance of deductions for personal entertainment flights to the extent the costs of the flight are not reimbursed or imputed as income (SIFL) 5
To Reimburse for Personal Use of the Company Aircraft or Not That is the Question 6
Assuming No Reimbursement The IRS requires the company to value the unreimbursed personal flights using SIFL and add that amount to the Employee s taxable income as a fringe benefit The disallowance for any personal entertainment flights is the cost attributable to the flight less the SIFL amount The deduction for any personal entertainment flights is the amount added to the Employee s taxable income 7
Personal Flights as a Fringe Benefit Refresher Standard Industry Fare Level (SIFL) is a formula accepted by the IRS for valuing unreimbursed personal flights Employee includes employees, partners, directors, independent contractors, certain former employees, and any guest of an employee (even if the employee is not on board/recipient of the flight) Employee status - Control Employee: Most officers, paid in the top 1% of the company, owns 5% or more of company, directors, top 50 employees, certain retired former Control Employees; Non-Control Employees = everyone else May be reported on a W-2, 1099 or K-1 & is subject to payroll tax 8
Key Factors Guests require income imputation to their host based on the control status of their host Aircraft weight (MTOW), aircraft multiple and segment fee Does not apply to charitable flights SIFL calculator / software NOTE: There is a Fair Market Value approach to valuing personal flights for imputation purposes, but it is rarely used and omitted from this presentation. 9
Assuming Reimbursement FAA limitations and exceptions Any compensation is generally prohibited for transportation when not within the scope of and incidental to the business of the company Personal entertainment disallowance 10
2 ½ Exceptions to the FAA s General Prohibition of Reimbursing for Personal Flights under Part 91 1. Time Sharing Agreements Reimbursement of up to twice the cost of fuel plus several flightspecific incidentals listed in FAR 91.501(d) 2. Nichols Opinion (Schwab Re-Interpretation) Full cost reimbursement for the pro rata cost of owning, operating and maintaining the aircraft may be allowed for flights by certain approved executives for routine personal travel Still need plan for non-routine travel 2 ½. Dry Lease Lease without pilots Not really an exception because not air transportation Can charge as much as the market will bear 11
Personal Entertainment Use Disallowance Section 274 of the tax code disallows deductions for company aircraft used by Specified Individuals (including their guests) for entertainment, amusement or recreational purposes Deductions from the aircraft attributable to personal entertainment use are disallowed in excess of the amount the company imputes to the Employee s taxable income as a fringe benefit and/or reimbursed by the Specified Individual This includes depreciation! No practical effect for sole proprietorships all personal flights are disallowed anyway 12
Specified Individual For the personal entertainment use disallowance to apply, a Specified Individual must be on board A Specified Individual is every officer, director and beneficial owner directly or indirectly owning more than 10% of any class of any equity security of the company or any related entity Includes family members and guests, even if the Specified Individual is not on the flight Examples: president, board member, general partner, managing partner, certain shareholders, members and partners Different than a Control Employee 13
What is Entertainment Use? Have heard it said that entertainment is like pornography, I know it when I see it Any activity generally considered to be entertainment, amusement or recreation Reasonable expectation of the traveler Does not depend on whether the trip was actually entertaining 14
Examples of Entertainment Entertainment: Sporting events, hunting, fishing, golfing, travel to country/golf/athletic clubs, vacations, weddings, theatres, skiing, resort destinations, sightseeing, parties, sailing, etc. Non-entertainment: funeral, business unrelated to that of the employer providing the flight, medical purposes, commuting, fights with advisors, flight to take child to school, flights to visit family, board of directors meeting for other companies, charitable flights, etc. Gray areas (e.g. commuting) Lack of entertainment is key, not the routine nature of the activity 15
Entertainment Use Calculations Four Allocation Methods: 1. Occupied seat hours per passenger method using seat hours 2. Occupied seat miles per passenger method using seat miles 3. Flight by flight seat hours per flight method using seat hours 4. Flight by flight seat miles per flight method using seat miles Calculate the disallowance using all 4 methods, and use the method that provides the best result 16
Occupied Seat Hours / Miles Calculate the annual occupied seat hours/miles Flight hours/miles for each flight x total number of passengers Calculate the cost per-occupied seat hour/mile Annual aircraft expenses subject to disallowance / the annual occupied seat hours/miles Calculate entertainment occupied seat hours/miles Flight hours/miles per flight x number of entertainment passengers Calculate the disallowance of deductions Entertainment occupied seat hours/miles x the cost per hour/mile Subtract the amount imputed as income (SIFL) to, and/or reimbursed by, the Specified Individual from the expenses for the personal entertainment flight The deduction should equal the SIFL and/or reimbursed amount 17
Flight by Flight Seat Hours/Miles Calculate cost per hour/mile Annual aircraft expenses / annual flight hours/miles Calculate the expenses for the flight Cost per hour/mile x flight hours/miles Calculate percentage of entertainment occupied seat hours/miles Entertainment occupied seat hours/miles / total occupied hours/miles Calculate the disallowance of deductions Expenses of the flight x percentage of entertainment occupied hours/miles Subtract the amount imputed as income (SIFL) to, and/or reimbursed by, the Specified Individual from the expenses for the personal entertainment flight The deduction should equal the SIFL and/or reimbursed amount 18
Expenses Subject To Disallowance All of the costs of the entertainment flights are subject to the disallowance, including depreciation, salaries and expenses of pilots, maintenance and other personnel, takeoff and landing fees, hangar fees (home and away), fuel, maintenance, registration, insurance, catering, management fees, interest of debt secured by or traceable to the aircraft purchase, lease payments (if aircraft is leased rather than owned), and charter payments (if aircraft is chartered rather than owned) The expenses for the flight are then allocated pro-rata to the passengers on the flight 19
Special Depreciation Rule The result may be less than all of the basis being subject to the disallowance! Only for purposes of calculating the disallowance, you may use the ADS straight-line method over the life of the aircraft even though MACRS is used to depreciate the aircraft The amount disallowed in any given year as a result of the election may not exceed the otherwise allowable amount of depreciation for that year When regular accelerated schedule concludes, there is no remaining depreciation on that aircraft subject to the disallowance If the company elects to use the straight-line method for one aircraft, it must use the method for all aircraft it owns The election may be made for aircraft placed in service in prior years. If so, use straight-line depreciation for the original basis as if the election had always been in effect 20
Foreign Travel Exceeding 7 Days Covered under disallowance rules, but the impact is a SIFL imputation to the Employee, NOT a disallowance for the company If both conditions below are met, SIFL may be reduced to the ratio of personal days to total days for employees or guests not traveling entirely for personal purposes: The trip outside the United States lasts for more than 7 days At least 25% of the passenger s time on the trip is for non-business activities (measured on daily basis) Calculate the SIFL amount as if the trip was entirely personal, and multiply the SIFL amount by the percentage of personal days Any business activity taking place in a day qualifies the day as a business day Travel days in and out of the U.S. and weekend days are business days SIFL for employees or guests traveling entirely for non-business purposes is not reduced under this rule Only for the purpose of calculating the 7 day threshold, the day travel begins is not counted, but the day travel ends is counted For a sole proprietor, multiply the percentage of personal days by the actual costs for the flight 21
Foreign Travel Example 10 day trip from Seattle to Beijing Employee on business plus spouse traveling for non-business Departs on Tuesday, returns the following Thursday Employee conducts business Wednesday, Thursday and Friday 3 days are non-business (30%) 5,500 statute miles each way 400% aircraft multiple with control employees 22
Foreign Travel Example (cont.) Rate Employee Spouse 500 miles 0.253 126.50 126.50 1500 miles 0.1929 192.90 192.90 1500 miles 0.1855 742.00 742.00 Sub-Total 1,061.40 1,061.40 Aircraft Multiple 400% 4,245.60 4,245.60 Terminal Charge 46.25 46.25 Sub-Total 4,291.85 4,291.85 7 Day Rule Applied 30% 100% Sub-Total 1,287.56 4,291.85 Total SIFL to Employee 5,579.41 23
Deadhead Flights Deadhead flights are flights with no passengers (e.g. empty repositioning flights) Deadhead flights must be treated as passenger flights for calculating entertainment disallowance This contrasts from the SIFL rules Deadheads are treated as having the same number and character of passengers as the leg of the trip to which the deadhead relates For example, if a flight from A to B had 2 business and 2 entertainment passengers, the deadhead from B back to A would be treated as if there were 2 business and 2 entertainment passengers, for a total of 4 business and 4 entertainment passengers 24
Mixed Use Detour Method When a flight includes multiple destinations, at least one of which is for business purposes, and at least one of which is for entertainment purposes, the flight hours/miles allocated to entertainment use will be the excess of the total flight hours/miles flown during the trip over the number of flight hours/miles that would have been flown if the flights to the entertainment destinations had not occcured 25
Calculating Entertainment Use Disallowance The basic formula for the disallowance is: The expenses subject to the disallowance for the personal entertainment flight (any amount the company imputes to the Specified Individual s taxable income (SIFL) + any amount the company is reimbursed (Time Sharing Agreement, Dry Lease or Nichols Opinion Arrangement) by the Specified Individual) The deduction for the personal entertainment flight should equal the amount of imputed income and/or reimbursement Disallowance is allocated pro-rata among the expenses Disallowed deduction doesn t reduce basis and the loss carries forward 26
Summary If the Employee IS NOT reimbursing for personal use: The value is determined under the SIFL formula and imputed as income For personal entertainment flights, the expenses subject to the disallowance less the amount of SIFL income are disallowed, thus the otherwise available depreciation and other deductions are limited to the amount of imputed income If the Employee IS reimbursing for personal use: Dry Lease, Time Sharing Agreement or Nichols Opinion Arrangement payment due to FAA limitations For personal entertainment flights, the expenses subject to the disallowance less any reimbursement are disallowed, thus the otherwise available depreciation and other deductions are limited to the amount of the Dry Lease, Time Sharing Agreement or Nichols Opinion Arrangement payment Either way the deduction for personal entertainment flights is the SIFL amount and/or the reimbursement amount 27
Issues for Public Companies 28
Take a Breath. There s Only Three Standard Concerns 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure Fringe Benefit Income added to the W-2 of the Host Passenger Aviation Costs Not Deductible to the Company The Company s Cost of Providing Personal Use to each Executive 29
What are the Basics Again? Three Different Methods 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure Published Rates Per Mile Follow the rules - Multipliers - Terminal charges What s your PE percentage? That percentage of aviation cost is Not Deductible DOC s Aggregate Incremental Cost or AIC 30
Where are the Challenges? 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure Lots of calculations Whether to charge SIFL can be gray A few tricks, but generally a mechanical effort We are still in denial about PE BIG mathematical calculations Gray areas all over the place Its on the Internet The media, investors, and watchdogs study this Again Gray Nuisance Big Dollars External Scrutiny 31
One Last Factor. Time Sharing Agreements or TSA 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure TSA allows key execs to reimburse the company for personal use TSA reimbursements will reduce the Company s Cost ( AIC ) Typically Negates SIFL The Executive is Paying No Impact on PE percentage Still generating PE use TSA Payments lower the proxy disclosure Might eliminate it 32
Any Questions Before We Proceed? 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure TSA allows key execs to reimburse the company for personal use TSA reimbursements will reduce the Company s Cost ( AIC ) Typically Negates SIFL The Executive is Paying No Impact on PE percentage Still generating PE use TSA Payments lower the proxy disclosure Might eliminate it 33
Let s Dive into SEC Disclosures 34
SEC Proxy Part of the Annual Reporting to Shareholders Proxy Statement: Must Disclose the Value of Aircraft Personal Use for each Named Executive Officer (NEO) Amounts exceeding $10,000 must be disclosed in the company s Summary Compensation Table Amounts exceeding the greater of $25,000 or 10% of total perquisites require separate footnote explanation Generally, included under All Other Compensation Value = Aggregate Incremental Cost (AIC) of Providing the Compensation. Significant variations in calculations across reporting companies. 35
What is a Perquisite? Also know as a company Perk An item is not a perquisite or personal benefit if: it is integrally and directly related to the performance of the executive s duties. Otherwise, an item is a perquisite or personal benefit if it: confers a direct or indirect benefit that has a personal aspect without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees. SEC Release Nos. 33-8732; 34-54302 36
Personal Aircraft Use is a Reportable Perquisite Aircraft personal use is a perquisite/personal benefit that may be reportable as Other Compensation in Summary Compensation Table (Regulation S-K Item 402(c)) SEC Staff remarks: Focus on principles Specific examples include deadheading Cost does not determine whether an item is a perquisite (e.g., if travel is business-related, SEC is indifferent to whether it s coach, first-class or on a company plane) 37
Differing FAA, IRS & SEC Rules Reflect their Goals FAA = Safety: Says passenger can t pay (Part 91; limited exceptions) IRS = Tax Revenue: Says personal use of employer-provided aircraft is a taxable fringe benefit: If employee does not pay, income must be imputed Company risks loss of deductions for entertainment use SEC = Investor Protection: Says it doesn t matter what value is imputed for tax purposes, a reporting company must disclose the aggregate incremental cost of providing the perk 38
How to Compute AIC Aggregate Incremental Cost Summary: Those costs which the company would not have incurred without the personal use of the plane by an NEO or their guests Significant variations among company reports, but some common practices include: Inclusion of variable costs or direct operating costs (fuel, trip-related expenses) Exclusion of fixed costs (salaries, depreciation, maintenance) Exclusion of flights where business passengers are aboard (negligible incremental cost for personal use passengers) Use of published hourly operating costs Use of actual hourly operating costs 39
If SIFL is Present, Expect SEC Disclosure SIFL and Proxy disclosures go hand in hand For NEO s, the AIC disclosure is closely related to the flights which require SIFL SIFL can be disclosed for informational purposes, but does not satisfy SEC s AIC disclosure requirements The AIC is generally much higher than SIFL Sample :Round Trip LAX & TEB Gulfstream G-V SIFL: $3,941 / person Incremental Cost: ~ $27,000 Retail Charter: ~ $60,000 40
Sample Disclosure # 1 Exxon Mobil Summary Compensation Table for 2013 Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) Non- Equity Incentive Plan Compensation ($) Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) R.W. Tillerson Chairman and CEO 2013 2012 2011 2,717,000 2,567,000 2,387,000 3,670,000 4,587,000 4,368,000 21,254,625 19,627,875 17,890,875 0 0 0 0 0 0 0 13,037,201 9,755,401 496,704 447,425 519,230 28,138,329 40,266,501 34,920,506 A.P. Swiger Senior Vice President; PFO 2013 2012 1,052,500 962,500 1,876,000 2,174,000 8,577,422 7,327,740 0 0 0 0 640,703 7,281,545 112,596 102,616 12,259,221 17,848,401 M.W. Albers Senior Vice President 2013 2012 2011 1,092,500 1,020,000 942,500 1,876,000 2,345,000 2,070,000 8,577,422 7,920,938 6,679,260 0 0 0 0 0 0 0 6,975,372 3,837,964 111,791 123,905 106,937 11,657,713 18,385,215 13,636,661 M.J. Dolan Senior Vice President 2013 2012 2011 1,175,000 1,077,500 991,250 2,168,000 2,527,000 2,232,000 10,051,076 8,601,371 7,219,962 0 0 0 0 0 0 395,472 7,738,975 4,657,416 126,600 118,041 106,369 13,916,148 20,062,887 15,206,997 S.D. Pryor Vice President; President, ExxonMobil Chemical Company 2013 2012 2011 1,040,000 1,006,000 972,000 1,601,000 2,001,000 1,905,000 7,273,805 6,717,095 6,122,655 0 0 0 0 0 0 0 4,314,699 1,833,877 115,226 111,261 110,698 10,030,031 14,150,055 10,944,230 41
Sample Disclosure #1 Exxon Mobil All Other Compensation in 2013 The following table breaks down the amounts included in the All Other Compensation column of the Summary Incremental cost for personal use of the aircraft is based on direct operating costs (fuel, airport fees, incremental pilot costs, etc.) and does not include capital costs of the aircraft since the Company already incurs these capital costs for business purposes. For security reasons, the Board requires the Chairman and CEO to use Company aircraft for both business and personal travel. The Committee considers these costs to be necessary, security-related business expenses rather than perquisites, but per the disclosure regulations, we report the incremental cost of aircraft usage for personal travel. 42
Sample Disclosure #2 Phillip Morris Footnote) The amounts shown are the incremental cost of personal use of Company aircraft to Phillip Morris and include the cost of triprelated crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contract costs, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per hour flown, and other smaller variable costs. Fixed costs that would be incurred in any event to operate Company aircraft (e.g. aircraft purchase costs, depreciation, maintenance not related to personal trips, and flight crew salaries) are not included. 43
Case Example: Jackson Power, Inc. (Fictional) Industrial Contractor Walter Jackson, Chairman & CEO Publicly-traded: JPI (NYSE) $16 Billion in Revenues Headquarters in Dallas Two Aircraft Gulfstream G-IV Falcon 2000 44
Three Areas of Impact to JPI 1 SIFL Income 2 Entertainment Disallowance 3 SEC Proxy Disclosure Fringe Benefit Income added to the W-2 of the Host Passenger Aviation Costs Not Deductible to the Company The Company s Cost of Providing Personal Use to each Executive 45
Other Compensation for Walter Jackson, CEO 2011 2010 2009 $126,000 $131,000 $88,000 The amounts in the "Other" column for Mr. Jackson includes provision of company cars, club dues, and the incremental variable operating costs to the Company (which include fuel, landing fees, on-board catering and crew travel expenses) attributable to his personal use of the corporate aircraft. 46
Timeline of Proxy Disclosures 2010 Discloses other compensation to CEO of $88,000 in 2009 for company cars, club dues, and personal use of the aircraft 2011 Discloses $131,000 in 2010 for company cars, club dues, and personal use of the aircraft 2012 Discloses $126,000 in 2011 for company cars, club dues, and personal use of the aircraft March A daily business journal highlights differences between FAA flight records and JPI s proxy 47
Media Article Focuses on Top Destinations 104 landings at Dallas (main office) 30 landings at Naples (home office) 22 landings at O Hare 15 landings at Nantucket (home office) 12 landings at Milwaukee Incremental Cost Round Trip 6 hours, $18,000 Nantucket SIFL Round Trip $2,628 / person Dallas Incremental Cost Round Trip 4.5 hours, $13,500 SIFL Round Trip $1,816 / person Naples 48
Potential JPI Disclosures 2011 Flights Simplifying Assumptions Used: Naples & Nantucket trips would be deemed entertainment (SIFL, SEC disclosure, disallowance) Direct, round trips from Dallas Incremental costs of $3,000 per hour Two Passengers: CEO and one guest Incremental Cost of CEO Flights = $675,000 Naples: 30 trips @ 13,500 = $405,000 Nantucket: 15 Trips @ 18,000 = $270,000 Even SIFL exceeds the $126,000 disclosure Naples: 30 @ $1,816 X 2 pax = $108,960 Nantucket:15 @ $2,628 X 2 pax = $78,840 49
Timeline of Proxy Disclosures 2010 Discloses other compensation to CEO of $88,000 in 2009 for company cars, club dues, and personal use of the aircraft 2011 Discloses $131,000 in 2010 for company cars, club dues, and personal use of the aircraft 2012 Discloses $126,000 in 2011 for company cars, club dues, and personal use of the aircraft March May A daily business journal highlights differences between FAA flight records and JPI s proxy Jackson Power discloses that the SEC has begun an informal inquiry 50
Time Sharing Agreements TSA s 51
Time Sharing Agreements Reimbursement by CEO under TSA Eliminates (or reduces) SIFL imputed income Partially offsets company expenses/disallowance May reduce or eliminate SEC incremental cost disclosure But It will trigger Federal Excise Tax (another tax return) May also trigger need to report a related party disclosure or material agreement to the SEC (for 8-K, proxy disclosures) 52
Time Sharing Agreements FAR 91.501: Sets Limit at Two Times Fuel 1. Fuel, oil, lubricants, and other additives. 2. Travel expenses of the crew 3. Hangar and tie-down costs away from home base 4. Insurance for a specific flight 5. Landing fees, airport taxes, and similar assessments. 6. Flight-specific customs, foreign permits, and similar fees 7. In-flight food and beverages. 8. Passenger ground transportation. 9. Flight planning and weather contract services. 10. An additional charge equal to 100 percent of the expenses listed in item 1 (fuel) 53
Time Sharing Agreements CEO & Spouse Visiting Friends in St. Louis Scenario SIFL SEC Proxy CEO & Spouse use CEO s TSA CEO & Spouse ride along with two execs with a meeting in St. Louis CEO & Spouse fly to St. Louis because the plane is deadheading to retrieve other execs returning from St. Louis No the CEO is reimbursing and not receiving a fringe benefit Yes Yes Warning 1: We must still attribute the PE seat hours for disallowance Warning 2: Deciding when a TSA is in effect could be contentious. Probably zero TSA reimbursement negates the incremental cost No incremental cost (plane was going anyway) No incremental cost (plane was going anyway) 54
Wrap Up & Tips 55
Documentation Requirements The taxpayer has the burden of proving eligibility to claim a deduction Specifically required under Section 274(d) and Treas. Reg. 1.274 5T(b)(2): Dates of departure and return, number of days spent on business; destinations; business reason for travel or nature of business benefit expected, logs, trip sheets, etc. sufficient to establish each element; maintained at or near the time of use; and a written statement of business or personal nonentertainment purpose for each passenger on each flight No or insufficient documentation can mean taxable income being imputed to the Employee and/or a disallowance of aircraft expense and depreciation deductions to the company What documentation would you want to have if you were being audited? 56
Documentation Issues Plenty of good and bad software available Document person by person, leg by leg Substantiating business/personal non-entertainment use at or near the time of expenditure or use is critical Create and maintain a personal use policy, resolutions, etc. Consistency is important 57
Managing the Documentation Process General Document like you are preparing for an audit Designate ownership of critical tasks Systematize, objectivize and standardize Rules for common scenarios Customize logbooks and reports Perform periodic review of your structure and internal audits If you see an issue, address it now BEFORE you are audited Software / online calculators This is often where the system seems to break down 58
Managing the Documentation Process (cont d) Education Discussion between record keeper(s), personnel categorizing flights, and the person setting parameters and providing clear guidance Inaccurate/incomplete information or characterization may flow through to the tax returns Consult with your team of aviation tax advisors NBAA Personal Use Handbook NBAA presentations and aviation tax advisors Provide monthly written reports to the Employee/Specified Individual Document any missing information, characterization, approval, etc. Provide opportunity for questions to be answered Make full completion mandatory Get final signoff by the appropriate person 59
Transport of Elected Officials 60
Transport of Government Officials What does this mean for the flight department? Under the Federal Campaign Act of 1971, a corporation may not make any contributions to a candidate for election, which includes the use of a corporate aircraft at no cost or at a discount rate. The FAA s general policy is that no payment is permitted for flights operated under FAR Part 91. To comply with the FEC requirements, there is an exception in FAR Section 91.321 61
Transport of Government Officials Sec. 91.321 Carriage of candidates in elections. (a) As an aircraft operator, you may receive payment for carrying a candidate, agent of a candidate, or person traveling on behalf of a candidate, running for Federal, State, or local election, without having to comply with the rules in parts 121, 125 or 135 of this chapter, under the following conditions: (1) Your primary business is not as an air carrier or commercial operator; (2) You carry the candidate, agent, or person traveling on behalf of a candidate, under the rules of part 91; and (3) By Federal, state or local law, you are required to receive payment for carrying the candidate, agent, or person traveling on behalf of a candidate. For federal elections, the payment may not exceed the amount required by the Federal Election Commission. For a state or local election, the payment may not exceed the amount required under the applicable state or local law. (b) For the purposes of this section, for Federal elections, the terms candidate and election have the same meaning as set forth in the regulations of the Federal Election Commission. For State or local elections, the terms candidate and election have the same meaning as provided by the applicable State or local law and those terms relate to candidates for election to public office in State and local government elections. [Doc. No. FAA 2005 20168, 70 FR 4982, Jan. 31, 2005] 62
63 Transport of Government Officials What does this mean for the flight department? FEC regulations require Presidential and U.S. Senate Candidates to reimburse any non-commercial operator. Candidates are required to pay the full charter rate for a plane large enough to accommodate all campaign travelers on a comparable make and model aircraft IRS views payments by elected officials to Part 91 operators as commercial air transportation and is subject to Federal Excise Tax (FET) Payment must be received within seven days of the flight.
THANK YOU! Alan Burnett CenterPoint Aviation Law PLLC 2624 Eastlake Ave. E. Seattle, WA 98102 206-805-5700 alan@centerpointaviationlaw.com Tina Kettle UTFlight 200 Signature Way East Granby, CT 06026 860-292-3211 tina.kettle@utc.com Doug Stewart AircraftLogs 941 Chatham Lane, Suite 203 Columbus, OH 43221 614-503-4584 doug.stewart@aircraftlogs.com 64