Aviation Tax - Audit Technique Guide (ATG)
95 Pages
English
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Aviation Tax - Audit Technique Guide (ATG)

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Downloading requires you to have access to the YouScribe library
Learn all about the services we offer
95 Pages
English

Description

MSSPMarket Segment Specialization ProgramAviation TaxThe taxpayer names and addresses shown in this publication are hypothetical. They were chosen at random from a list of names of American colleges and universities as shown in Webster’s Dictionary or from a list of names of counties in the United States as listed in the United States Government Printing Office StyleManual.This material was designed specifically for training purposes only. Under no circumstances should the contents be used or cited as authority for setting or sustaining a technical position.Department of the TreasuryInternal Revenue ServiceTraining 3123-004 (2-99)TPDS No. 83026EThis page intentionally left blank.1Aviation TaxMarket Segment Specialization Program GuideC h a p t e r 1 : I n t r o d u c t i o n t o t h e A v i a t i o n Ma r k e t S e g m e n t ........................ 1 - 1Background..............................................................1-1O u ts id e S ta k e h old e r s....................................................... 1 - 2T r a d e A s s oc ia tion s ..................................................... 1 - 2F e d e r a l A g e n c ie s 1 - 2F A A C e r tific a te s ( L ic e n s e s ).................................................. 1 - 2A ir T r a n s p or ta tion E x c is e I s s u e S p e c ia lis t P r og r a m ................................ 1 - 3Chapter 2: Return Filing and Deposit Requirements A n d Bli n d C r e d i t ...

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MSSP
Market Segment Specialization Program
Aviation Tax
The taxpayer names and addresses shown in this publication are
hypothetical. They were chosen at random from a list of names of
American colleges and universities as shown in Webster’s
Dictionary or from a list of names of counties in the United States
as listed in the United States Government Printing Office Style
Manual.
This material was designed specifically for training purposes only.
Under no circumstances should the contents be used or cited as
authority for setting or sustaining a technical position.
Department of the Treasury
Internal Revenue Service
Training 3123-004 (2-99)
TPDS No. 83026EThis page intentionally left blank.
1Aviation Tax
Market Segment Specialization Program Guide
C h a p t e r 1 : I n t r o d u c t i o n t o t h e A v i a t i o n Ma r k e t S e g m e n t ........................ 1 - 1
Background..............................................................1-1
O u ts id e S ta k e h old e r s....................................................... 1 - 2
T r a d e A s s oc ia tion s ..................................................... 1 - 2
F e d e r a l A g e n c ie s 1 - 2
F A A C e r tific a te s ( L ic e n s e s ).................................................. 1 - 2
A ir T r a n s p or ta tion E x c is e I s s u e S p e c ia lis t P r og r a m ................................ 1 - 3
Chapter 2: Return Filing and Deposit Requirements
A n d Bli n d C r e d i t s ........................................................ 2 - 1
Filing Requirements2-1
F u e l T a x e s ......................................................... 2 - 1
A ir T r a n s p or ta tion T a x e s .............................................. 2 - 1
M u ltip le T a x e s...................................................... 2 - 1
D e p os it R e q u ir e m e n ts 2 - 1
E le c tr on ic D e p os it R e q u ir e m e n ts ........................................... 2 - 1
E le c tr on ic F e d e r a l T a x P a y m e n t S y s te m...................................... 2 - 1
F e d e r a l T a x D e p os it C ou p on s ............................................. 2 - 2
W h e n T o M a k e D e p os its ................................................. 2 - 2
9 - D a y R u le ........................................................... 2 - 2
A lte r n a tiv e M e th od ( I R S N os . 2 2 , 2 6 , 2 7 , a n d 2 8 ) .............................. 2 - 2
1 4 - D a y R u le ( I R S N os . 1 4 , 6 0 , 6 2 , 7 3 , 7 4 , 5 9 , 7 5 , a n d 7 6 ) ....................... 2 - 3
D e la y e d D e p os its....................................................... 2 - 3
A m ou n t T o D e p os it ..................................................... 2 - 3
S a fe H a r b or R u le s ...................................................... 2 - 4
R e q u ir e m e n ts T o B e M e t................................................ 2 - 4
The Look-Back Quarter Liability Safe Harbor Rule .............................2-4
Exceptions............................................................2-5
The Current Liability Safe Harbor Rule ......................................2-5
B lin d C r e d its ............................................................. 2 - 5
C h a p t e r 3 : F u e l T a x e s..................................................... 3 - 1
Introduction3-1
A v ia tion F u e ls O th e r T h a n G a s olin e............................................ 3 - 1
Background...........................................................3-1
Definitions3-2
I m p os ition of T a x ...................................................... 3 - 3
T a x R a te s ............................................................ 3 - 3
Exemptions3-4
E x a m in a tion T e c h n iq u e s ................................................. 3 - 7
iiiA v ia tion G a s olin e ......................................................... 3 - 8
I m p os ition of T a x ...................................................... 3 - 9
T a x R a te s ............................................................ 3 - 9
Exemptions ...........................................................3-9
C r e d its a n d R e fu n d s..................................................... 3 - 9
E x a m in a tion T e c h n iq u e s ................................................ 3 - 1 0
F u e l U s e d i n C om m e r c ia l A v ia tion............................................ 3 - 1 0
F loor S toc k s T a x 3 - 1 1
C h a p t e r 4 : C o le c t e d T a x e s................................................. 4 - 1
Introduction .............................................................4-1
C olle c te d v s . N on c olle c te d T a x e s ............................................. 4 - 1
A d m in is tr a tiv e P r oc e d u r e s f or C ole c te d T a x e s ................................... 4 - 2
References............................................................4-2
Procedures4-2
T r u s t F u n d R e c ov e r y P e n a lty 4 - 2
C h a p t e r 5 : T r a n s p o r t a t i o n o f P e r s o n s b y A i r .................................. 5 - 1
Introduction .............................................................5-1
R a te of T a x .............................................................. 5 - 1
D om e s tic T r a n s p or ta tion ................................................. 5 - 1
D om e s tic S e g m e n t...................................................... 5 - 2
D e fin ition of D om e s tic S e g m e n t .......................................... 5 - 2
C h a n g e s i n S e g m e n ts .................................................... 5 - 2
R a te on I n te r n a tion a l T r a v e l............................................... 5 - 3
Definitions...............................................................5-5
Payments Subject to Tax -- Treas. Reg. Section 49.4261-7 ..........................5-6
O th e r P a y m e n ts S u b je c t to T a x 5 - 6
Payments Not Subject to Tax -- Treas. Reg. Section 49.4261-8 .......................5-7
O th e r P a y m e n ts N ot S u b je c t to T a x............................................ 5 - 7
Exemptions..............................................................5-7
Chapter 6: Commercial Airlines/Scheduled Flights ...................6-1
Introduction .............................................................6-1
S ou r c e s of I n for m a tion ..................................................... 6 - 1
E x a m in a tion T e c h n iq u e s .................................................... 6 - 2
P os s ib le I s s u e s............................................................ 6 - 3
Citations ................................................................6-3
ivC h a p t e r 7 : A i r C h a r t e r.................................................... 7 - 1
Introduction .............................................................7-1
Leases..................................................................7-1
W e t v s . D r y L e a s e ......................................................... 7 - 2
S ou r c e s of I n for m a tion ..................................................... 7 - 2
E x a m in a tion T e c h n iq u e s 7 - 3
S m a l A ir c r a ft on N on e s ta b lis h e d L in e s ......................................... 7 - 3
Helicopters ..............................................................7-3
E m e r g e n c y M e d ic a l F lig h ts .................................................. 7 - 4
C h a p t e r 8 : C o r p o r a t e F li g h t D e p a r t m e n t s..................................... 8 - 1
Introduction .............................................................8-1
Affiliated Groups ..........................................................8-1
D e fin ition s of C om m e r c ia l A v ia tion............................................ 8 - 1
I n te r c h a n g e A g r e e m e n ts .................................................... 8 - 2
T im e - S h a r in g A g r e e m e n ts ................................................... 8 - 2
D e m on s tr a tion F lig h ts ...................................................... 8 - 3
E le c te d O fic ia ls a n d C a n d id a te s .............................................. 8 - 3
C or p or a te O fic e r s a n d E m p loy e e s............................................. 8 - 4
A ir c r a ft f or th e E x c lu s iv e U s e of S h a r e h old e r s.................................... 8 - 4
J oin t O w n e r s h ip........................................................... 8 - 5
F r a c tion a l O w n e r s h ip....................................................... 8 - 5
M a n a g e m e n t C om p a n ie s .................................................... 8 - 5
S ou r c e s of I n for m a tion ..................................................... 8 - 6
E x a m in a tion T e c h n iq u e s 8 - 6
C h a p t e r 9 : T o u r O p e r a t o r s a n d T r a v e l A g e n c i e s ............................... 9 - 1
Introduction .............................................................9-1
A r e a s of C on s id e r a tion 9 - 1
Background..............................................................9-1
R e la tion s h ip B e tw e e n th e E n titie s ............................................. 9 - 2
Operations...............................................................9-3
E x a m in a tion T e c h n iq u e s .................................................... 9 - 5
T r u s t F u n d R e c ov e r y P e n a lty................................................. 9 - 7
C h a p t e r 1 0 : A i r T r a n s p o r t a t i o n o f P r o p e r t y .................................. 1 0 - 1
Introduction ............................................................10-1
Liability for Tax ..........................................................10-1
Exemptions.............................................................10-2
C om p u ta tion of P r op e r ty T a x ............................................... 1 0 - 2
E x a m in a tion T e c h n iq u e s ................................................... 1 0 - 3
S ou r c e s of I n for m a tion .................................................... 1 0 - 6
vA p p e n d i x : S y n o p s i s o f T a x R u l e s ..................................A - 1
I R C S e c tion s .............................................................A - 1
R e v e n u e R u lin g s ..........................................................A - 5
C ou r t C a s e sA - 2 1
Glossary............................................................... G-1
viChapter 1
Introduction to the Aviation Market Segment
Background
The aviation market segment includes all persons involved in commercial and
noncommercial air transportation. This group includes but is not limited to
-- Scheduled commercial airlines,
-- On-demand air taxi services,
-- Charter airlines,
-- Integrated package delivery companies,
-- Travel agencies and tour brokers,
-- Businesses and individuals that operate aircraft for their own use,
-- Individuals who purchase airline tickets, and
-- Marketers of fuel that is used in aircraft.
The Internal Revenue Code (IRC) imposes taxes on both commercial and
noncommercial aviation. For flights in commercial aviation, a tax is imposed on
amounts paid for the transportation of persons by air (IRC section 4261) and property
by air (IRC section 4271). Also, commercial aviation is burdened by a relatively small
fuel tax on aviation gasoline (IRC sections 4081 and 6421) and aviation fuel (other
than gasoline) (IRC section 4091). For flights in noncommercial aviation, a much
higher rate of tax on fuel is imposed.
Whether commercial or noncommercial aviation taxes apply is determined on a
flight-by-flight basis. Determining which set of taxes applies to which flights is a
recurring audit issue. Determining the amount paid for commercial transportation is
another recurring audit issue.
Aviation taxes go into the Airport and Airway Trust Fund (IRC section 9502).
Expenditures from the fund support the Federal Aviation Administration (FAA).
This document serves as a self-study text and a market segment specialization guide
for examiners. The contents of this document are not to be used or cited as authority
for setting or sustaining a technical position.
Great caution should be used in applying existing regulations and revenue rulings to
present fact situations. The IRC section 4261 regulations, which were last revised in
1963, do not reflect the many changes in the Code since that time. Similarly, many
revenue rulings contain out-of-date tax rates and do not reflect the significant changes
made in the Code in 1996 and 1997.
1-1Outside Stakeholders
A partial list of outside stakeholders is provided below.
Trade Associations
-- General Aviation Manufacturers Association (manufacturers of airplanes)
-- Air Transport Association of America (airlines)
-- International Air Transport Association (international airlines)
-- Air Transport Association of Canada (Canadian carriers)
-- National Business Aviation Association (corporate air operations/business plane
users)
-- National Air Transportation Association (air charter and freight companies)
-- Aircraft Owners and Pilots Association (owners and pilots)
-- Regional Airline Association (regional carriers)
-- U.S. Air Tour Association (air tour operators)
-- Helicopter Association International (helicopter carriers)
-- Hawaiian Helicopter Tour Operators Association
-- U.S. Parachute Association (skydiving enthusiasts and drop zone operators)
-- Association of Air Medical Services (air ambulances)
-- American Association of Airport Executives (airport operators)
Federal Agencies
-- Federal Aviation Administration (Recipient of Airport and Airway Trust Fund)
FAA Certificates (Licenses)
The types of certificates (licenses issued by the FAA) are:
-- Part 91: Noncommercial (that is, no profit motive rather than the IRS definition of
no compensation),
-- Part 121: Large carriers of passengers and freight,
-- Part 125: Large corporate aircraft and large aircraft used for gambling junkets,
-- Part 129: Foreign carriers, and
-- Part 135: Small carriers of passengers and freight.
The FAA defines commercial aviation as the carriage of persons or property by air for
profit. Compare this to the IRS definition, which simply requires that the carriage be
undertaken for compensation. The differing definitions have caused confusion among
some aircraft operators. Flight departments often assume that, since a flight is not
considered commercial for FAA purposes, the flight is not considered commercial for
1-2tax purposes. However, the IRS is not bound by other agencies’ definitions. Rev. Rul.
78-75, 1978-1 C.B. 340 states that the status of an aircraft operator as a “commercial
operator” under FAA regulations does not determine the commercial or
noncommercial status of the operator in the application of the aviation fuel and air
transportation taxes.
Air Transportation Excise Issue Specialist Program

The November 1991 Excise Tax Task Force Report addressed the need to move to a
market segment approach in the excise tax arena. Corporate decisions were made to
integrate market segment approaches throughout all compliance activities. The
establishment of a work group to address the air transportation industry was the
beginning of the implementation of the market segment approach to excise tax.
Members of the work group were selected on the basis of their work, technical
experiences, training, and background.
Each member of the work group is responsible for providing advice, assistance, and
technical expertise to agents in the planning and conduct of examinations. Please feel
free to request assistance from the work group whenever you feel it would be
appropriate. This assistance can be in the form of information, advice, or if necessary,
physical assistance at the examination sites. The workgroup members develop market
segment audit techniques and guidelines, update and revise the Internal Revenue
Manual, lead or participate in technical conferences, and submit articles to trade
publications. In addition, the group advises IRS Headquarters on issues and practices
in the application of the law, emerging issues, changes in technology, and innovative
audit techniques from the field.
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