EFTA02605282.pdf

From: jeffrey E. <jeevacation@gmail.com> Sent: Monday, September 25, 2017 3:24 PM To: Barry J. Cohen; Melanie Spinella Subject: Re: FW: FET Question yes, im aware the NBAA fought and won. never h=s been an issue. . these are technical . one of th= reasons they won was that no one ever really paid . On Mon, Se= 25, 2017 at 11:19 AM, Barry J. Cohen =wrote: Minor point on the airplane tax article you sent a w=ile back. It suggested that FET was due on Part 91 flights. Se= below the view of Ruth Wimer at McDermott suggesting that this policy is =o longer followed by the IRS. From: Wimer, Ruth [mailto mailto Sent: Monday, September 25, 2017 11:14 AM To: Joseph Vinciguerra mailto: Cc: De oe David EEO <mailto <mailto Subject: RE: FET Question Joe: The short a=swer is that CCA 201210026 is no longer followed by the IRS. First, =here was an actual internal document about a year after the CCA, directing=auditors to curtail assessment. (see article below) Then about a year ago, the audit of the issue, that being Own=r Management company flights, was dropped altogether for new audits. =Thus, it is now "safe" not to pay the excise tax on the Pa=t 91 Owner flights. </=pan> NBAA/BNA Article descr=bing initial IRS Directive: </=pan> In recen= years, but particularly after the issuance of Chief Counsel Advice 201210=26 (March 9, 2012) (the "CCA"), the IRS has been aggressively auditing aircraft management companies and asserting that FET=applies to flights by aircraft owners on managed aircraft. The IRS argues =hat the management company has taken possession, command, and control of t=e aircraft and is providing air transportation service to the aircraft owner. However, the IRS has not iss=ed clear guidance that can be cited as legal precedent to support this the=ry. (CCAs cannot be cited as legal precedent.)<=p> Impli=ations of the Suspension on Assessments The susp=nsion on assessments of FET was announced by the Small Business/Self Emplo=ment (SBSE) division of the IRS, which includes the FET auditors. The intent is to suspend the collection of these taxes u=til after the issuance of EFTA_R1_01795660 EFTA02605282 clear authoritative guidance, such as regulation=. At the SBSE meeting, we requested that the IRS terminate the FET audits =f owner flights, but SBSE decided to merely suspend the assessments instead. We under=tand that this decision was communicated informally to FET audit managers,=likely by conference call. If the guidance project takes a long time, then the lack of a written document announcing the susp=nsion on assessments may result in misunderstandings with IRS auditors reg=rding the scope of the suspension. Overv=ew of FET Audit Process As a pro=edural matter, an FET audit includes an examination of the taxpayer by an =uditor and the issuance of an Examination Report in which the auditor proposes adjustments to the taxpayer's FET liabil=ty. If the taxpayer signs the audit report indicating agreement with the p=oposed adjustments, the FET is then assessed. If the taxpayer does not agr=e, but instead appeals the proposed adjustment to the IRS Appeals Office, then the taxpayer and the Appeals Of=ice may reach an agreement resulting in an assessment of taxes. If they ca=not agree at Appeals, then the IRS would presumably assess the taxes and r=quire payment, and the taxpayer could seek a refund in federal court. Effec= of the Suspension of Assessments on Existing Audits Notwiths=anding the suspension of assessments, FET examinations currently in progre=s may continue, and the IRS Agents may provide preliminary Examination Reports proposing FET taxes to be assessed. Howeve=, it is not expected that final Examination Reports (a/k/a 30-Day Letters)=would be issued, because that would result in the cases going to Appeals.<=> Effec= of the Suspension of Assessments on New Audits A suspen=ion of assessments does not preclude the initiation of new audits. We have=been informally advised that the IRS does not intend to initiate new management company audits on this issue. However, the susp=nsion would not preclude the initiation of FE audits for other issues (e.=., audits of FET collected on third-party charters and fuel tax audits). A=cordingly, there is no guarantee that an auditor opening an examination of FET on charter flights will refr=in from examining the owner flights as well. However, pursuant to the susp=nsion on assessments, the results of any such examination of owner flights=should not be included in a final Examination Report, as long as the taxpayer agrees to extend the statute o= limitations. Statu=e of Limitations We furth=r understand that the IRS does not intend to let the statute of limitation= expire on current audits. Accordingly, management companies under audit should anticipate that the IRS will request that the= sign a written consent to keep the statute of limitations open for a year=or more to allow time for the IRS to issue guidance (such as regulations) =n the issue. Management companies confronted by such a request should consider whether they would prefer to =a) not sign the consent to extend the statute of limitations and effective=y force the issue to be considered at Appeals based on existing guidance, =r (b) sign the statute extension in the hope that future guidance on the issue will be favorable.=/u> Inter=st on Tax Liability In decid=ng whether to agree to a statute extension that would allow a case to be s=spended, a management company should consider the effect of interest that continues to accrue on any FET that is ultimately =ue. We are not aware of any special rule that would abate interest during =he suspension period. Cases=in Appeals 2 EFTA_R1_01795661 EFTA02605283  Cases cu=rently in IRS Appeals are not directly affected by the suspension, since t=e IRS Appeals Office is not under the jurisdiction of the SBSE division. It is possible that cases currently in Appeals may b= settled in Appeals. However, if the taxpayer and the Appeals Officer are =ware of the suspension, they may choose to suspend the Appeal pending the =ssuance of future guidance. We understand that SBSE may inform the Appeals Office of the suspension.</=> Clear=and Precise Guidance Standard =/span> Copies o= the documents referenced below analyzing this issue are available on the =BAA web site. In particular, the industry response provided to the Chief Counsel's Office explains that the U.S. Supreme =ourt in Central Illinois Public Service Co. v. U.S. <https://maps.google.com/?==U.S.,+435+U.S.+21&entry=gmail&source=g> , 435 U.S. 21(1978), held, with respect to payroll tax withholdings, that a company that is required to collect=a tax (a "deputy tax collector") can only be held liable for unc=llected tax if published legal authority provided clear and precise guidan=e regarding the deputy tax collector's obligation to collect the tax. Published court cases do not discuss whether this case=applies in the context of FET. However, because management companies appea= to be deputy tax collectors required (according to the IRS auditors) to c=llect FET on amounts paid by the aircraft owners, it would appear to follow that management companies can o=ly be held liable for uncollected FET if published legal guidance met this=clear and precise standard. As noted=below, the sole reason for opening a guidance project on the issue is that=the existing published legal authority does not provide clear guidance. Accordingly, it would seem that management compani=s have a fairly straightforward argument that (a) they can only be liable =or failure to collect FET if the published legal guidance regarding their =ollection responsibility is clear and precise, and (b) the suspension of assessments and opening of a guidan=e project effectively concedes that existing guidance regarding owner flig=ts does not meet this standard. Based on this and other arguments, managem=nt companies with cases in Appeals may prefer to continue to work with Appeals to resolve their cases.=u> Manageme=t companies that are currently under audit and are considering the effect =f the suspension on their case should consider that the clear and precise guidance standard requires that such guidance e=ist at the time that the deputy tax collector was required to collect the =ax. Therefore, if the clear and precise standard applies, regulations issu=d in the future cannot retroactively provide clear and precise guidance to prior periods when the tax was not c=llected. Backg=ound Meetings Leading Up to the Suspension on Assessments The susp=nsion on assessments and the IRS's tentative commitment to initiate a =uidance project on this issue is the result of a series of meetings between NBAA representatives and the IRS over the past five ye=rs. The following briefly summarizes this effort: • =C2 In 2008, the IRS issued an Audit Technique Guide suggesting that per=orming aircraft management services would result in the management company=having possession, command, and control of the aircraft. • =C2 During the period 2008 to 2011, NBAA representatives met with IRS re=resentatives several times and provided written memoranda regarding the is=ue with the intention of cooperatively developing guidance in an Industry Directive. • =C2 In the Summer of 2011, NBAA representatives met with representatives=of IRS to discuss the issue. At this meeting, the IRS seemed committed to =orking with industry on the issue. • =C2 However, the IRS then requested guidance from the IRS Chief Counsel&=39;s Office on the issue, and in March 2012, CCA 201210026 was issued indi=ating that management services companies have possession, command, and control of managed aircraft, unless their services were perfo=med in the capacity of an agent of the owner. • =C2 Following the issuance of this CCA, the IRS aggressively increased a=dits of managed aircraft. • =C2 In April and June 2012, NBAA representatives met with the IRS Chief =ounsel's Office and provided a written industry response to the CCA. 3 EFTA_R1_01795662 EFTA02605284  * =C2 In December 2012, NBAA and NATA representatives met with Chief Couns=l's Office attorneys and submitted a draft Chief Counsel's Advice =o correct the CCA. • =C2 In February 2013, NBAA and NATA provided a memorandum to the Chief C=unsel's Office attorneys explaining that Rev. Rul. 74.123 does not pro=ide clear guidance that owner flights on managed aircraft are taxable transportation. • =C2 In March 2013, NBAA and NATA representatives again met with the Chie= Counsel's Office attorneys who agreed in general terms that existing =ublished guidance does not provide clear guidance on the issue. At the meeting, the Chief Counsel's Office attorneys stated=that they would support a request for guidance on the issue (such as a reg=lations project) and recommended that we meet with SBSE regarding audits o= management companies. • =C2 On May 8, 2013, with the support of Chief Counsel's Office attor=eys, representatives of NBAA and NATA met with SBSE representatives and re=uested that FET audits of owner flights on managed aircraft be terminated or at least suspended. Accordin=ly, the suspension of assessments is the result of a multi-year effort to =ddress this issue. However, it represents only an interim step in the process of working toward a resolution of the issue= Expec=ed Future Guidance In April=2013, NBAA submitted a request to the IRS to include this issue on the IRS=priority guidance plan. Because the request is supported by the Chief Counsel's Office attorneys and by SBSE, it seem= highly likely that it will be included in the priority guidance plan. We =re advised that the IRS will decide shortly whether to add the project to =he guidance plan and what form the guidance will take. From our meetings, it seems likely that the IRS will o=en a regulations project, rather than a less precedential form of guidance=such as a revenue ruling or another chief counsel advice. NBAA pla=s to continue to meet with IRS and Treasury representatives as guidance is=developed on this issue. On May 9, 2013, NBAA representatives met with Treasury Tax Legislative Counsel and provided dra=t regulations along with other background materials on the issue. In recen= years, but particularly after the issuance of Chief Counsel Advice 201210=26 (March 9, 2012) (the "CCA"), the IRS has been aggressively auditing aircraft management companies and asserting that FET=applies to flights by aircraft owners on managed aircraft. The IRS argues =hat the management company has taken possession, command, and control of t=e aircraft and is providing air transportation service to the aircraft owner. However, the IRS has not iss=ed clear guidance that can be cited as legal precedent to support this the=ry. (CCAs cannot be cited as legal precedent.)<=span> Impli=ations of the Suspension on Assessments The susp=nsion on assessments of FET was announced by the Small Business/Self Emplo=ment (SBSE) division of the IRS, which includes the FET auditors. The intent is to suspend the collection of these taxes u=til after the issuance of clear authoritative guidance, such as regulation=. At the SBSE meeting, we requested that the IRS terminate the FET audits =f owner flights, but SBSE decided to merely suspend the assessments instead. We under=tand that this decision was communicated informally to FET audit managers,=likely by conference call. If the guidance project takes a long time, then the lack of a written document announcing the susp=nsion on assessments may result in misunderstandings with IRS auditors reg=rding the scope of the suspension. Overv=ew of FET Audit Process 4 EFTA_R1_01795663 EFTA02605285  As a pro=edural matter, an FET audit includes an examination of the taxpayer by an =uditor and the issuance of an Examination Report in which the auditor proposes adjustments to the taxpayer's FET liabil=ty. If the taxpayer signs the audit report indicating agreement with the proposed adjustments, the FET is then assessed. If the taxpayer does not agr=e, but instead appeals the proposed adjustment to the IRS Appeals Office, then the taxpayer and the Appeals Of=ice may reach an agreement resulting in an assessment of taxes. If they ca=not agree at Appeals, then the IRS would presumably assess the taxes and r=quire payment, and the taxpayer could seek a refund in federal court. Effec= of the Suspension of Assessments on Existing Audits Notwiths=anding the suspension of assessments, FET examinations currently in progre=s may continue, and the IRS Agents may provide preliminary Examination Reports proposing FET taxes to be assessed. Howeve=, it is not expected that final Examination Reports (a/k/a 30-Day Letters)=would be issued, because that would result in the cases going to Appeals.<=> Effec= of the Suspension of Assessments on New Audits A suspen=ion of assessments does not preclude the initiation of new audits. We have=been informally advised that the IRS does not intend to initiate new management company audits on this issue. However, the susp=nsion would not preclude the initiation of FET audits for other issues (e.=., audits of FET collected on third-party charters and fuel tax audits). A=cordingly, there is no guarantee that an auditor opening an examination of FET on charter flights will refr=in from examining the owner flights as well. However, pursuant to the susp=nsion on assessments, the results of any such examination of owner flights=should not be included in a final Examination Report, as long as the taxpayer agrees to extend the statute o= limitations. Statu=e of Limitations We furth=r understand that the IRS does not intend to let the statute of limitation= expire on current audits. Accordingly, management companies under audit should anticipate that the IRS will request that the= sign a written consent to keep the statute of limitations open for a year=or more to allow time for the IRS to issue guidance (such as regulations) =n the issue. Management companies confronted by such a request should consider whether they would prefer to =a) not sign the consent to extend the statute of limitations and effective=y force the issue to be considered at Appeals based on existing guidance, =r (b) sign the statute extension in the hope that future guidance on the issue will be favorable.=/u> Inter=st on Tax Liability In decid=ng whether to agree to a statute extension that would allow a case to be s=spended, a management company should consider the effect of interest that continues to accrue on any FET that is ultimately =ue. We are not aware of any special rule that would abate interest during =he suspension period. Cases=in Appeals Cases cu=rently in IRS Appeals are not directly affected by the suspension, since t=e IRS Appeals Office is not under the jurisdiction of the SBSE division. It is possible that cases currently in Appeals may b= settled in Appeals. However, if the taxpayer and the Appeals Officer are =ware of the suspension, they may choose to suspend the Appeal pending the =ssuance of future guidance. We understand that SBSE may inform the Appeals Office of the suspension.</=> Clear=and Precise Guidance Standard =/span> Copies o= the documents referenced below analyzing this issue are available on the =BAA web site. In particular, the industry response provided to the Chief Counsel's Office explains that the U.S. Supreme =ourt in Central Illinois 5 EFTA_R1_01795664 EFTA02605286 Public Service Co. v. U.S. <https://maps.google.com/?=.U.S.,+435+U.S.+21&entry=gmail&source=g> , 435 U.S. 21(1978), held, with respect to payroll tax withholdings, that a company that is required to collect=a tax (a "deputy tax collector") can only be held liable for unc=llected tax if published legal authority provided clear and precise guidance regarding the deputy tax collector's obligation to collect the tax. Published court cases do not discuss whether this case=applies in the context of FET. However, because management companies appea= to be deputy tax collectors required (according to the IRS auditors) to c=llect FET on amounts paid by the aircraft owners, it would appear to follow that management companies can o=ly be held liable for uncollected FET if published legal guidance met this=clear and precise standard. As noted=below, the sole reason for opening a guidance project on the issue is that=the existing published legal authority does not provide clear guidance. Accordingly, it would seem that management compani=s have a fairly straightforward argument that (a) they can only be liable =or failure to collect FET if the published legal guidance regarding their =ollection responsibility is clear and precise, and (b) the suspension of assessments and opening of a guidan=e project effectively concedes that existing guidance regarding owner flig=ts does not meet this standard. Based on this and other arguments, managem=nt companies with cases in Appeals may prefer to continue to work with Appeals to resolve their cases.=u> Manageme=t companies that are currently under audit and are considering the effect =f the suspension on their case should consider that the clear and precise guidance standard requires that such guidance e=ist at the time that the deputy tax collector was required to collect the =ax. Therefore, if the clear and precise standard applies, regulations issu=d in the future cannot retroactively provide clear and precise guidance to prior periods when the tax was not c=llected. Backg=ound Meetings Leading Up to the Suspension on Assessments The susp=nsion on assessments and the IRS's tentative commitment to initiate a =uidance project on this issue is the result of a series of meetings between NBAA representatives and the IRS over the past five ye=rs. The following briefly summarizes this effort: • =C2 In 2008, the IRS issued an Audit Technique Guide suggesting that per=orming aircraft management services would result in the management company=having possession, command, and control of the aircraft. • =C2 During the period 2008 to 2011, NBAA representatives met with IRS re=resentatives several times and provided written memoranda regarding the is=ue with the intention of cooperatively developing guidance in an Industry Directive. • =C2 In the Summer of 2011, NBAA representatives met with representatives=of IRS to discuss the issue. At this meeting, the IRS seemed committed to =orking with industry on the issue. • =C2 However, the IRS then requested guidance from the IRS Chief Counsel&=39;s Office on the issue, and in March 2012, CCA 201210026 was issued indi=ating that management services companies have possession, command, and control of managed aircraft, unless their services were perfo=med in the capacity of an agent of the owner. • =C2 Following the issuance of this CCA, the IRS aggressively increased a=dits of managed aircraft. • =C2 In April and June 2012, NBAA representatives met with the IRS Chief =ounsel's Office and provided a written industry response to the CCA. • =C2 In December 2012, NBAA and NATA representatives met with Chief Couns=l's Office attorneys and submitted a draft Chief Counsel's Advice =o correct the CCA. • =C2 In February 2013, NBAA and NATA provided a memorandum to the Chief C=unsel's Office attorneys explaining that Rev. Rul. 74.123 does not pro=ide clear guidance that owner flights on managed aircraft are taxable transportation. • =C2 In March 2013, NBAA and NATA representatives again met with the Chie= Counsel's Office attorneys who agreed in general terms that existing =ublished guidance does not provide clear guidance on the issue. At the meeting, the Chief Counsel's Office attorneys stated=that they would support a request for guidance on the issue (such as a reg=lations project) and recommended that we meet with SBSE regarding audits o= management companies. 6 EFTA_R1_01795665 EFTA02605287  =C2 On May 8, 2013, with the support of Chief Counsel's Office attor=eys, representatives of NBAA and NATA met with SBSE representatives and re=uested that FET audits of owner flights on managed aircraft be terminated or at least suspended. Accordin=ly, the suspension of assessments is the result of a multi-year effort to =ddress this issue. However, it represents only an interim step in the process of working toward a resolution of the issue= Expec=ed Future Guidance In April=2013, NBAA submitted a request to the IRS to include this issue on the IRS=priority guidance plan. Because the request is supported by the Chief Counsel's Office attorneys and by SBSE, it seem= highly likely that it will be included in the priority guidance plan. We =re advised that the IRS will decide shortly whether to add the project to =he guidance plan and what form the guidance will take. From our meetings, it seems likely that the IRS will o=en a regulations project, rather than a less precedential form of guidance=such as a revenue ruling or another chief counsel advice. NBAA pla=s to continue to meet with IRS and Treasury representatives as guidance is=developed on this issue. On May 9, 2013, NBAA representatives met with Treasury Tax Legislative Counsel and provided dra=t regulations along with other background materials on the issue. </=pan> </=pan> Ruth M. Wimer Partner McDermott Will & Emery LLP=/b> I The McDermott Building=C2 I 500 North Capitol Street, N.W. <https://maps.google.com/?q=500+North=Capitol+Street,+N.W.%C2V0A0+%7C%0D+%C2%A0Washington,%C2%A0DC%C 2%A020001&=entry=gmail&source=g> I Washington, <https://maps.google.com/?q=500+North+Ca=itol+Street,+N.W.%C2%A0+%7C%0D+70C2%,A0Washington,%C2%A0DC%C 2%A020001&en=ry=gmail&source=g> DC <https://maps.go=gle.com/?q=500+North+Capitol+Street,+N.W.%C2%A0+%7C%0D+94C270A0Washington,=CMA0DC%C 2%A020001&entry=gmail&source=g> 20=01 Tel +1 202 756 8614 <tel:(202)%20756-8614> I Fax +1 202 756 8087 <tel:(202)%20756-8087> <http://www.mwe.com/Ruth-Wimerk =wbr>Email <mailto 2 lab> Twitter I Linkedln thttp://www.linkedin.com/company/mcdermo=t-will-&-emery> =/b><=>Blog <http://www.mwe.com/info/news/blogs.html> </=pan> From: Joseph Vinciguerra imailto Sent: Monday, September 25, 2017 10:43 AM To: Wimer, Ruth 7 EFTA_R1_01795666 EFTA02605288  Cc: Deyoe, David; Barry J. Cohen; John Castrucci Subject: FET Question Hi Ruth, We had previously discussed how Part 91operatio=s were not subject to FET. Take a look at the attached article, spec=fically the highlighted section on page 4. In reading the CCA the article refers to (also attached), it seems like the IRS is taring the position that management agreements under Part 91operations are s=bject to FET. Being that the CCA is from 2012, I would think there h=s been some time to sort through the IRS' position. What are your thoughts on this and how it cou=d apply to our structure? Thanks. Joe Joseph M. Vinciguerra I <=> =ax Director & Tax Counsel Elysium Management LLC I 445 Park Avenue Suite 1401, <https://maps.google.com/?cp445=Park+Avenue+Suite+1401,%C2%A0+New+York,+NY+10022&entry=gmail&sourcerg > New York, NY 10022 <https://maps.goore.com/?q=445+Park+Avenue+Suite+1401,%C2%A0+New+York,+NY+10022&entry=3Dgmail&source =g> I Tel. tel mailto ******* ************* ****** *** ***** *** ********* * ******* ***********=********* ******* * ******** This message is a PRIVILEGED AND CONFIDENTIAL communication. This message a=d all attachments are a private communication sent by a law firm and may b= confidential or protected by privilege. If you are not the intended recip=ent, you are hereby notified that any disclosure, copying, distribution or use of the information contained =n or attached to this message is strictly prohibited. Please notify the se=der of the delivery error by replying to this message, and then delete it =rom your system. Thank you. Please visit http://www.m=e.com/ <http://www.mwe.com/> for more information about our Firm. 8 EFTA_R1_01795667 EFTA02605289  =AO please note The information contained i= this communication is confidential, may be attorney-client privileged,=may constitute inside information, and is intended only for the use =f the addressee. It is the property of JEE Unauthorized use, disclos=re or copying of this communication or any part thereof is strictly pro=ibited and may be unlawful. If you have received this communication =n error, please notify us immediately by return e-mail or by e-mail to =a href="mailto:jeevacation@gmail.com" target="_blank">jeevacation@gmai=.com, and destroy this communication and all copies thereof, inc=uding all attachments. copyright -all rights reserved 9 EFTA_R1_01795668 EFTA02605290