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Week 6 Irac

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Week 6 IRAC

Issue
What is the question presented to the court? Is NetJets required to collect excise tax on air transportation under section 4261 from owners of its fractional aircraft ownership program?
Rule(s):
FAA regulation 91.1001 states Fractional Owners or the Management Company are responsible for paying taxes. According to CharitablePlanning.com, Kallina & Associates, LLC (2014), “Under FAA Regulations, Title 14 CFR, Part 1, "commercial operator" is defined as a person who, for compensation or hire, engages in the carriage by aircraft in air commerce of persons or property.” (para. 6). Title 26 of the Internal Revenue Code, upholds that if the individual receives compensation in cash or property, the appropriate taxes under section 4261 and 4271 should be imposed on the “customer.” ("Title 26—internal Revenue Code").
Application/Analysis:
The rules involved in this case are ambiguous. NetJets claims FAA part 91 flights are tax exempt because they are noncommercial. “Title 26 - IRC § 4261 Subchapter C—Transportation by Air (d) By whom paid. States “Except as provided in section 4263(a), the taxes imposed by this section shall be paid by the person making the payment subject to the tax.” In this case the passenger or owner. Under fractional ownership, the Program Manager is responsible for collecting the taxes imposed by section 4261, NetJets. Ultimately it comes down to Internal Revenue Service Ruling 78-75, 1978-1 C.B. 340, basically states that FAA regulations do not supersede the IRS Ruling in determining the commercial or noncommercial status of the operator with regards to the application of air transportation taxes.
Conclusion
What was the final outcome of the case? The Judge issued an order directing a stay all proceedings so the parties may proceed with private mediation.

CharitablePlanning.com, Kallina & Associates, LLC .

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