Research Paper #1 – Williams Aero Flight Services

Introduction
I have been hired as the CPA Tax Advisor for Williams Aero Flight Services. Several tax issues have been brought to my attention and it is my job to advise the management of Williams Aero Flight Services on their recent tax issues.

Relevant Facts
Williams Aero Flight Services is a charter carrier operating out of Manassas, Virginia, that flies both passengers and cargo. Prior to 2011, their primary business was the transport of corporate executives. Currently, their primary customer for both the cargo and passenger divisions is the U.S. Military, which represents 10% of their total revenue.

Williams Aero Flight Services’ fleet consists entirely of jets. A typical, properly maintained jet aircraft has a useful economic life of thirty years. Frequent and necessary maintenance must be performed on the engine and airframe in order for the jet to last all thirty years. The aircraft engines and auxiliary power units must be serviced every 24 to 60 months, based on usage. In order to service an engine and power unit, the engine must be removed from the aircraft and sent to a third party specialized maintenance company that maintains and repairs the engines and power units. The annual cost of these repairs, resulting from the age of the fleet and the annual usage, is $2,000,000. Annual revenue is approximately $40,000,000.

During a preliminary meeting, the IRS claims that the jet engines and power units are separate units of property from the airframe and that the cost of these repairs must be capitalized under Section 263(a). Williams Aero Flight Services contends that the jet engines, power units, and the aircraft itself are one unit of property that should be depreciated over its useful economic life of thirty years.

As a consequence of the dwindling state of the War on Terror,