§4261 — Imposition of tax

Statute Text — 26 U.S.C. §4261

Treasury Regulations

• Treas. Reg. §49.4261-1Imposition of tax; in general Show full text ▾ Collapse ▴

  (a) In general. Section 4261 of the Internal Revenue Code (Code) imposes three separate taxes on amounts paid for certain transportation of persons by air. Tax attaches at the time of payment for any transportation taxable under section 4261. The applicability of each section 4261 tax is generally determined on a flight-by-flight basis.

  (1) Percentage tax. Section 4261(a) imposes a 7.5 percent tax on the amount paid for the taxable transportation of any person. See section 4262(a) of the Code and § 49.4262-1(a) for the definition of the term taxable transportation.

  (2) Domestic segment tax. Section 4261(b)(1) imposes a $3 tax (indexed annually for inflation pursuant to section 4261(e)(4)) on the amount paid for each domestic segment of taxable transportation. See section 4261(b)(2) for the definition of the term domestic segment. The domestic segment tax does not apply to a domestic segment beginning or ending at an airport that is a rural airport for the calendar year in which the segment begins or ends (as the case may be). See section 4261(e)(1)(B) for the definition of the term rural airport.

  (3) International travel facilities tax. Section 4261(c) imposes a $12 tax (indexed annually for inflation pursuant to section 4261(e)(4)) on any amount paid (whether within or without the United States) for any transportation by air that begins or ends in the United States. The international travel facilities tax does not apply to any transportation that is entirely taxable under section 4261(a) (determined without regard to sections 4281 and 4282). See section 4261(c)(2). A special rule applies to Alaska and Hawaii flights. See section 4261(c)(3).

  (b) Payment and collection obligations—(1) In general. The taxes imposed by section 4261 are collected taxes. In general, the person making the payment subject to tax is the taxpayer. See section 4261(d). The person receiving the payment is the collector (also commonly referred to as the collecting agent). See section 4291 of the Code. The collector must collect the applicable tax from the taxpayer, report the tax on Form 720, Quarterly Federal Excise Tax Return, and remit the tax to the Internal Revenue Service. See sections 4291, 6011, and 7501 of the Code. See § 40.6011(a)-1 of this chapter and § 49.4291-1. The collector must also make semimonthly deposits of the taxes imposed by section 4261. See section 6302(e) of the Code. See §§ 40.0-1(c), 40.6302(c)-1, and 40.6302(c)-3 of this chapter. See section 4263(a) and (c) of the Code for special rules relating to the payment and collection of tax.

  (2) Failure to collect tax. If any tax imposed by section 4261 is not paid at the time payment for transportation is made, then, to the extent the tax is not collected under any other provision of subchapter C of chapter 33 of the Code, the tax must be paid by the carrier providing the initial segment of transportation that begins or ends in the United States. See section 4263(c). See section 6672 of the Code for rules relating to the application of the trust fund recovery penalty.

  (c) Type of aircraft. The taxes imposed by section 4261 generally apply regardless of the type of aircraft on which the transportation is provided, provided all of the other conditions for liability are present and no specific statutory exemption applies. See paragraph (f) of this section for a list of statutory exemptions from tax. Amounts paid for the transportation of persons by air cushion vehicles, also known as hovercraft, are not subject to the taxes imposed by section 4261.

  (d) Purpose of transportation. The purpose of the transportation (for example, business or pleasure) is not a factor in determining taxability under section 4261.

  (e) Routes. Amounts paid for transportation may be taxable even if the transportation is not between two definite points. Unless otherwise exempt, a payment for continuous transportation that begins and ends at the same point is subject to tax. See section 4281 of the Code and § 49.4281-1 for the exemption for small aircraft on nonestablished lines.

  (f) Exemptions from tax; cross-references—(1) Aircraft management services. For the exemption for certain aircraft management services, see section 4261(e)(5) of the Code and § 49.4261-10.

  (2) Hard minerals, oil, and gas. For the exemption for certain uses related to the exploration, development, or removal of hard minerals, oil, or gas, see section 4261(f)(1).

  (3) Trees and logging operations. For the exemption for certain uses related to trees and logging operations, see section 4261(f)(2).

  (4) Air ambulances. For the exemption for air ambulances providing certain emergency medical transportation, see section 4261(g).

  (5) Skydiving. For the exemption for certain skydiving uses, see section 4261(h).

  (6) Seaplanes. For the exemption for certain seaplane segments, see section 4261(i).

  (7) Fractionally-owned aircraft. For the exemption for certain aircraft in fractional ownership aircraft programs, see section 4261(j).

  (8) Small aircraft on nonestablished lines. For the exemption for certain small aircraft on nonestablished lines, see section 4281 of the Code and § 49.4281-1.

  (9) Affiliated groups. For the exemption for certain transportation of members of an affiliated group, see section 4282.

  (10) United States and territories. For exemptions authorized by the Secretary of the Treasury or his delegate for the exclusive use of the United States, see section 4293.

  (g) Applicability date. This section applies to amounts paid on and after January 19, 2021. For rules that apply before that date, see 26 CFR part 49, revised as of April 1, 2020.

• Treas. Reg. §49.4261-1(a)In general. Show full text ▾ Collapse ▴

  In general. Section 4261 of the Internal Revenue Code (Code) imposes three separate taxes on amounts paid for certain transportation of persons by air. Tax attaches at the time of payment for any transportation taxable under section 4261. The applicability of each section 4261 tax is generally determined on a flight-by-flight basis.

  (1) Percentage tax. Section 4261(a) imposes a 7.5 percent tax on the amount paid for the taxable transportation of any person. See section 4262(a) of the Code and § 49.4262-1(a) for the definition of the term taxable transportation.

  (2) Domestic segment tax. Section 4261(b)(1) imposes a $3 tax (indexed annually for inflation pursuant to section 4261(e)(4)) on the amount paid for each domestic segment of taxable transportation. See section 4261(b)(2) for the definition of the term domestic segment. The domestic segment tax does not apply to a domestic segment beginning or ending at an airport that is a rural airport for the calendar year in which the segment begins or ends (as the case may be). See section 4261(e)(1)(B) for the definition of the term rural airport.

  (3) International travel facilities tax. Section 4261(c) imposes a $12 tax (indexed annually for inflation pursuant to section 4261(e)(4)) on any amount paid (whether within or without the United States) for any transportation by air that begins or ends in the United States. The international travel facilities tax does not apply to any transportation that is entirely taxable under section 4261(a) (determined without regard to sections 4281 and 4282). See section 4261(c)(2). A special rule applies to Alaska and Hawaii flights. See section 4261(c)(3).

• Treas. Reg. §49.4261-1(b)Payment and collection obligations—(1) In general. Show full text ▾ Collapse ▴

  Payment and collection obligations—(1) In general. The taxes imposed by section 4261 are collected taxes. In general, the person making the payment subject to tax is the taxpayer. See section 4261(d). The person receiving the payment is the collector (also commonly referred to as the collecting agent). See section 4291 of the Code. The collector must collect the applicable tax from the taxpayer, report the tax on Form 720, Quarterly Federal Excise Tax Return, and remit the tax to the Internal Revenue Service. See sections 4291, 6011, and 7501 of the Code. See § 40.6011(a)-1 of this chapter and § 49.4291-1. The collector must also make semimonthly deposits of the taxes imposed by section 4261. See section 6302(e) of the Code. See §§ 40.0-1(c), 40.6302(c)-1, and 40.6302(c)-3 of this chapter. See section 4263(a) and (c) of the Code for special rules relating to the payment and collection of tax.

  (2) Failure to collect tax. If any tax imposed by section 4261 is not paid at the time payment for transportation is made, then, to the extent the tax is not collected under any other provision of subchapter C of chapter 33 of the Code, the tax must be paid by the carrier providing the initial segment of transportation that begins or ends in the United States. See section 4263(c). See section 6672 of the Code for rules relating to the application of the trust fund recovery penalty.

• Treas. Reg. §49.4261-1(c)Type of aircraft. Show full text ▾ Collapse ▴

  Type of aircraft. The taxes imposed by section 4261 generally apply regardless of the type of aircraft on which the transportation is provided, provided all of the other conditions for liability are present and no specific statutory exemption applies. See paragraph (f) of this section for a list of statutory exemptions from tax. Amounts paid for the transportation of persons by air cushion vehicles, also known as hovercraft, are not subject to the taxes imposed by section 4261.

• Treas. Reg. §49.4261-1(d)Purpose of transportation. Show full text ▾ Collapse ▴

  Purpose of transportation. The purpose of the transportation (for example, business or pleasure) is not a factor in determining taxability under section 4261.

• Treas. Reg. §49.4261-1(e)Routes. Show full text ▾ Collapse ▴

  Routes. Amounts paid for transportation may be taxable even if the transportation is not between two definite points. Unless otherwise exempt, a payment for continuous transportation that begins and ends at the same point is subject to tax. See section 4281 of the Code and § 49.4281-1 for the exemption for small aircraft on nonestablished lines.

• Treas. Reg. §49.4261-1(f)Exemptions from tax; cross-references—(1) Aircraft management services. Show full text ▾ Collapse ▴

  Exemptions from tax; cross-references—(1) Aircraft management services. For the exemption for certain aircraft management services, see section 4261(e)(5) of the Code and § 49.4261-10.

  (2) Hard minerals, oil, and gas. For the exemption for certain uses related to the exploration, development, or removal of hard minerals, oil, or gas, see section 4261(f)(1).

  (3) Trees and logging operations. For the exemption for certain uses related to trees and logging operations, see section 4261(f)(2).

  (4) Air ambulances. For the exemption for air ambulances providing certain emergency medical transportation, see section 4261(g).

  (5) Skydiving. For the exemption for certain skydiving uses, see section 4261(h).

  (6) Seaplanes. For the exemption for certain seaplane segments, see section 4261(i).

  (7) Fractionally-owned aircraft. For the exemption for certain aircraft in fractional ownership aircraft programs, see section 4261(j).

  (8) Small aircraft on nonestablished lines. For the exemption for certain small aircraft on nonestablished lines, see section 4281 of the Code and § 49.4281-1.

  (9) Affiliated groups. For the exemption for certain transportation of members of an affiliated group, see section 4282.

  (10) United States and territories. For exemptions authorized by the Secretary of the Treasury or his delegate for the exclusive use of the United States, see section 4293.

• Treas. Reg. §49.4261-1(g)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. This section applies to amounts paid on and after January 19, 2021. For rules that apply before that date, see 26 CFR part 49, revised as of April 1, 2020.

• Treas. Reg. §49.4261-10Aircraft management services Show full text ▾ Collapse ▴

  (a) In general—(1) Overview. This section prescribes rules relating to the exemption under section 4261(e)(5) of the Internal Revenue Code (Code) for amounts paid (in cash or in kind) by an aircraft owner to an aircraft management services provider for certain aircraft management services (aircraft management services exemption). Pursuant to section 4261(e)(5), the tax imposed by section 4261 of the Code does not apply to amounts paid by an aircraft owner to an aircraft management services provider for aircraft management services related to maintenance and support of the aircraft owner's aircraft; or related to flights on the aircraft owner's aircraft (flight services). The aircraft management services exemption applies to amounts paid by an aircraft owner to an aircraft management services provider for flight services on the aircraft owner's aircraft, even if the aircraft owner is not on the flight. The aircraft management services exemption does not apply to amounts paid to an aircraft management services provider by another person on behalf of an aircraft owner (other than in a principal-agent scenario in which the aircraft owner is the principal). In addition, amounts paid for aircraft management services by a party related to the aircraft owner are not amounts paid by the aircraft owner solely by virtue of the relationship between the aircraft owner and the related party. However, if an aircraft owner leases an aircraft to another person, including a related party, amounts paid by the lessee to an aircraft management services provider for aircraft management services related to the leased aircraft qualify for the aircraft management services exemption, provided the lease is not a disqualified lease and all other requirements of section 4261(e)(5) are satisfied. For example, amounts paid for aircraft management services by one member of an affiliated group (as that term is defined in section 4282 of the Code) for flights on an aircraft owned by another member of the affiliated group are not amounts paid by the aircraft owner unless the member owning the aircraft leases the aircraft to the member of the affiliated group that pays for the aircraft management services. See paragraph (b) of this section for definitions of terms used in this section.

  (2) Private aviation. The aircraft management services exemption is limited to aircraft management services related to aircraft used in private aviation.

  (3) Adequate records required. In order to qualify for the aircraft management services exemption, an aircraft owner and aircraft management services provider must maintain adequate records to show that the amounts paid by the aircraft owner to the aircraft management services provider relate to aircraft management services specifically for the aircraft owner's aircraft or for flights on the aircraft owner's aircraft and to support any allocations required under paragraph (c) under of this section. Such records may include the agreement, if any, between the aircraft owner and the aircraft management services provider, evidence of aircraft ownership, evidence that amounts paid for aircraft management services came from the aircraft owner, and the aircraft management services provider's fee schedule.

  (b) Definitions. This paragraph provides definitions applicable to this section.

  (1) Aircraft management services. The term aircraft management services means—

  (i) Statutory services. The services listed in section 4261(e)(5)(B)(i)-(v); and

  (ii) Other services. Any service (including, but not limited to, purchasing fuel, purchasing aircraft parts, and arranging for the fueling of an aircraft owner's aircraft) provided directly or indirectly to an aircraft owner in order to provide air transportation to the aircraft owner on the aircraft owner's aircraft at a level and quality of service required under the agreement between the aircraft owner and the aircraft management services provider.

  (2) Aircraft management services provider. The term aircraft management services provider means a person that provides aircraft management services to an aircraft owner.

  (3) Aircraft owner—(i) In general. Except as otherwise provided in this section, the term aircraft owner means a person that owns an aircraft managed by an aircraft management services provider (commonly referred to as a managed aircraft), or a person that leases a managed aircraft (lessee) pursuant to a lease that is not a disqualified lease. A person owns a managed aircraft if the person holds legal title to the aircraft, or if the person holds substantial incidents of ownership in the aircraft for a period of more than 31 days. A lessee includes the beneficiary of an owner trust that holds legal title to the managed aircraft.

  (ii) Persons not included in the definition of aircraft owner. A lessee of an aircraft under a disqualified lease cannot be an aircraft owner with respect to the aircraft leased pursuant to the disqualified lease. A person that owns stock in a commercial airline does not qualify as an aircraft owner of that commercial airline's aircraft. A participant in a fractional aircraft ownership program, as defined in section 4043(c)(2) of the Code, does not qualify as an aircraft owner of the program's managed aircraft if the amount paid for such person's participation is exempt from the tax imposed by section 4261 reason of section 4261(j).

  (4) Disqualified lease. The term disqualified lease has the meaning given to it by section 4261(e)(5)(C)(ii).

  (5) Fair market value. The term fair market value means the value of comparable flights or services provided with respect to a comparable aircraft as of the date such flights or services are provided. The aircraft management services provider's published fee schedule in effect on the date(s) the flights or services are provided may be used as evidence of fair market value.

  (6) For-hire flight. The term for-hire flight means the use of an aircraft to transport passengers for compensation that is paid in cash or in kind. The term includes, but is not limited to, charter flights, air taxi flights, and sightseeing flights (commonly referred to as flightseeing flights).

  (7) Owner trust. The term owner trust means an arrangement in which legal title of an aircraft is held in the name of the trustee of the trust for the limited purpose of registering the aircraft in the United States with the Federal Aviation Administration pursuant to the registration requirements in 49 U.S.C. 40102(a) and 44102(a), and 14 CFR part 47.

  (8) Private aviation. The term private aviation means the use of an aircraft for civilian flights, except scheduled passenger service for which tickets (or substitutes equivalent to tickets) are sold on a seat-by-seat basis to the general public. The term includes, but is not limited to, civilian flights operated under Part 135 (14 CFR part 135) of the Federal Aviation Regulations prescribed by the Federal Aviation Administration (FARs).

  (9) Substitute aircraft. The term substitute aircraft means an aircraft, other than the aircraft owner's aircraft, that is provided by an aircraft management services provider to the aircraft owner when the aircraft owner's aircraft is not available, regardless of the reason for the unavailability.

  (c) Pro rata allocation—(1) In general. Except as provided in paragraph (c)(2)(iii) of this section, when an amount paid to an aircraft management services provider includes a portion that is subject to the tax imposed by section 4261 and a portion that consists of amounts described in section 4261(e)(5)(A), the exception in section 4261(e)(5) applies on a pro rata basis only to the portion that consists of amounts described in section 4261(e)(5)(A). See section 4261(e)(5)(D). In such case, the tax base for the portion that is subject to the tax imposed by section 4261(a) is the amount paid for the flights or services, provided the amount paid is separable and shown in exact amounts in the records pertaining to the charge. If the portion of the amount paid that is subject to the tax imposed by section 4261(a) is not separable, the tax base is the fair market value of the flights or services. However, the tax base determined in the previous sentence may not exceed the total amount paid (that is, the sum of the portion that is subject to the tax imposed by section 4261(a) and the portion that consists of amounts described in section 4261(e)(5)(A)).

  (2) Substitute aircraft—(i) Flight treated as a charter. If an aircraft management services provider provides a flight to an aircraft owner on a substitute aircraft, the flight is treated as a charter flight provided by the aircraft management services provider to the aircraft owner, regardless of whether the aircraft owner is on the flight, and the aircraft owner is treated as the charterer of such flight. If the flight constitutes taxable transportation, as defined in section 4262 of the Code, the tax imposed by section 4261(a) applies, unless the flight is exempt from such tax by reason of an exemption other than the aircraft management services exemption. See section 4261(b) and (c) for other taxes that may apply to flights provided by an aircraft management services provider to an aircraft owner on substitute aircraft.

  (ii) General rule for flights provided on substitute aircraft. In cases where an aircraft management services provider provides a flight to an aircraft owner on a substitute aircraft and an allocation is required, the rule in paragraph (c)(1) of this section applies in determining the tax base. In all other cases, the tax base and the tax imposed by section 4261(a) thereon must be determined in accordance with the rules of § 49.4261-7(h)(1), unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption.

  (iii) Special rule for for-hire flights provided on substitute aircraft. In cases where a substitute aircraft is used to provide a for-hire flight and an amount is paid for the flight by someone other than the aircraft owner, the tax base and the tax imposed by section 4261(a) thereon must be determined in accordance with the rules in § 49.4261-7(h)(2), unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption.

  (d) Choice of flight rules. Whether a flight on an aircraft owner's aircraft operates pursuant to the rules under FARs Part 91 (14 CFR part 91) or pursuant to the rules under FARs Part 135 does not affect the application of section 4261(e)(5).

  (e) Aircraft available for hire. Whether an aircraft owner permits an aircraft management services provider or other person to use its aircraft to provide for-hire flights (for example, when the aircraft is not being used by the aircraft owner or when the aircraft is being moved in deadhead service) does not affect the application of section 4261(e)(5). However, an amount paid for for-hire flights on the aircraft owner's aircraft, except payments made by the aircraft owner, does not qualify for the aircraft management services exemption under section 4261(e)(5). Therefore, an amount paid by someone other than the aircraft owner for a for-hire flight on the aircraft owner's aircraft is subject to the tax imposed by section 4261 unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption. See § 49.4261-7(h) for rules relating to the application of the tax imposed by section 4261 on amounts paid for certain charter flights.

  (f) Billing methods. Except as otherwise provided in this section, the method an aircraft management services provider bills, invoices, or otherwise charges an aircraft owner for aircraft management services, whether by specific itemization of costs, flat monthly or hourly fee, or otherwise, does not affect the application of section 4261(e)(5).

  (g) Multiple aircraft management services providers not disqualifying. Whether an aircraft owner pays amounts to more than one aircraft management services provider for aircraft management services does not affect the application of section 4261(e)(5).

  (h) Examples. The following examples illustrate the provisions of this section.

  (1) Example 1—(i) Facts. During the first quarter of 2021, an aircraft owner pays a $3,000 monthly management fee to an aircraft management services provider for services related to operating the aircraft owner's aircraft. The aircraft owner used its own aircraft for all but one of the flights the owner took during the period. On the one occasion that the aircraft owner's aircraft was unavailable when the aircraft owner wanted to fly, the aircraft management services provider used a substitute aircraft to transport the aircraft owner. The flight was within the continental United States and the aircraft owner received no compensation for the transportation of other passengers on the flight. The aircraft owner paid $1,000 for the flight on the substitute aircraft. The aircraft management services provider included the $1,000 charge for the substitute aircraft as a separate line item on the monthly management fee invoice.

  (ii) Analysis. The tax imposed by section 4261(a) applies to services that do not qualify for the section 4261(e)(5) exemption; in this case, the flight provided on the substitute aircraft. The flight provided on the substitute aircraft is treated as a charter flight for purposes of the tax imposed by section 4261(a), and the owner is treated as the charterer of the flight. The amount paid by the aircraft owner for the flight on the substitute aircraft is the section 4261(a) tax base. The monthly invoice from the aircraft management services provider to the aircraft owner included a line item in the amount of $1,000 for the charter flight. Because $1,000 is the actual amount paid for the flight, this amount is the section 4261(a) tax base. The tax imposed by section 4261(b) also applies to the flight on a per-passenger basis. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b).

  (2) Example 2—(i) Facts. Same facts as in paragraph (h)(1) of this section (Example 1), except the invoice does not show the amount paid for the flight on the substitute aircraft and that amount is not otherwise separable from the monthly management fee. The fair market value of the flight on the substitute aircraft is $1,000.

  (ii) Analysis. The tax imposed by section 4261(a) applies to the flight provided on the substitute aircraft. The amount paid for the flight on the substitute aircraft is not otherwise separable from the monthly management fee. Because $1,000 is the fair market value of the flight, and such amount does not exceed the $3,000 monthly management fee paid by the aircraft owner, this amount is the section 4261(a) tax base. The tax imposed by section 4261(b) also applies to the flight on a per-passenger basis. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b).

  (3) Example 3—(i) Facts. An aircraft owner pays a monthly management fee to an aircraft management services provider for aircraft management services related to the aircraft owner's aircraft. When the aircraft is not being used by the owner, the owner sometimes permits a charter company to use the aircraft to provide charter flights. At other times when the aircraft is not being used by the owner, the owner permits a tour operator to use the aircraft for flightseeing tours. All charter and flightseeing flights on the aircraft constitute taxable transportation, as that term is defined in section 4262, and no exemptions (other than section 4261(e)(5)) apply. No charter or flightseeing flights are provided on a substitute aircraft. The aircraft's maximum certificated takeoff weight is 7,000 pounds.

  (ii) Analysis. Amounts paid by the aircraft owner to the aircraft management services provider for aircraft management services related to the aircraft owner's aircraft are exempt under section 4261(e)(5). Amounts paid by the charterer or passengers for the charter flights are subject to tax under section 4261(a) and (b). See § 49.4261-7(h) for rules relating to the application of the tax imposed by section 4261 on amounts paid for charter flights. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b). Amounts paid by flightseeing customers for flightseeing tours are also subject to tax under section 4261(a) and (b). If a payment for a flightseeing tour includes charges for nontransportation services, the charges for the nontransportation services may be excluded in computing the tax payable provided the payments are separable and provided in exact amounts. See § 49.4261-2(c).

  (i) Applicability date. This section applies to amounts paid on and after January 19, 2021.

• Treas. Reg. §49.4261-10(a)In general—(1) Overview. Show full text ▾ Collapse ▴

  In general—(1) Overview. This section prescribes rules relating to the exemption under section 4261(e)(5) of the Internal Revenue Code (Code) for amounts paid (in cash or in kind) by an aircraft owner to an aircraft management services provider for certain aircraft management services (aircraft management services exemption). Pursuant to section 4261(e)(5), the tax imposed by section 4261 of the Code does not apply to amounts paid by an aircraft owner to an aircraft management services provider for aircraft management services related to maintenance and support of the aircraft owner's aircraft; or related to flights on the aircraft owner's aircraft (flight services). The aircraft management services exemption applies to amounts paid by an aircraft owner to an aircraft management services provider for flight services on the aircraft owner's aircraft, even if the aircraft owner is not on the flight. The aircraft management services exemption does not apply to amounts paid to an aircraft management services provider by another person on behalf of an aircraft owner (other than in a principal-agent scenario in which the aircraft owner is the principal). In addition, amounts paid for aircraft management services by a party related to the aircraft owner are not amounts paid by the aircraft owner solely by virtue of the relationship between the aircraft owner and the related party. However, if an aircraft owner leases an aircraft to another person, including a related party, amounts paid by the lessee to an aircraft management services provider for aircraft management services related to the leased aircraft qualify for the aircraft management services exemption, provided the lease is not a disqualified lease and all other requirements of section 4261(e)(5) are satisfied. For example, amounts paid for aircraft management services by one member of an affiliated group (as that term is defined in section 4282 of the Code) for flights on an aircraft owned by another member of the affiliated group are not amounts paid by the aircraft owner unless the member owning the aircraft leases the aircraft to the member of the affiliated group that pays for the aircraft management services. See paragraph (b) of this section for definitions of terms used in this section.

  (2) Private aviation. The aircraft management services exemption is limited to aircraft management services related to aircraft used in private aviation.

  (3) Adequate records required. In order to qualify for the aircraft management services exemption, an aircraft owner and aircraft management services provider must maintain adequate records to show that the amounts paid by the aircraft owner to the aircraft management services provider relate to aircraft management services specifically for the aircraft owner's aircraft or for flights on the aircraft owner's aircraft and to support any allocations required under paragraph (c) under of this section. Such records may include the agreement, if any, between the aircraft owner and the aircraft management services provider, evidence of aircraft ownership, evidence that amounts paid for aircraft management services came from the aircraft owner, and the aircraft management services provider's fee schedule.

• Treas. Reg. §49.4261-10(b)Definitions. Show full text ▾ Collapse ▴

  Definitions. This paragraph provides definitions applicable to this section.

  (1) Aircraft management services. The term aircraft management services means—

• Treas. Reg. §49.4261-10(c)Pro rata allocation—(1) In general. Show full text ▾ Collapse ▴

  Pro rata allocation—(1) In general. Except as provided in paragraph (c)(2)(iii) of this section, when an amount paid to an aircraft management services provider includes a portion that is subject to the tax imposed by section 4261 and a portion that consists of amounts described in section 4261(e)(5)(A), the exception in section 4261(e)(5) applies on a pro rata basis only to the portion that consists of amounts described in section 4261(e)(5)(A). See section 4261(e)(5)(D). In such case, the tax base for the portion that is subject to the tax imposed by section 4261(a) is the amount paid for the flights or services, provided the amount paid is separable and shown in exact amounts in the records pertaining to the charge. If the portion of the amount paid that is subject to the tax imposed by section 4261(a) is not separable, the tax base is the fair market value of the flights or services. However, the tax base determined in the previous sentence may not exceed the total amount paid (that is, the sum of the portion that is subject to the tax imposed by section 4261(a) and the portion that consists of amounts described in section 4261(e)(5)(A)).

  (2) Substitute aircraft—(i) Flight treated as a charter. If an aircraft management services provider provides a flight to an aircraft owner on a substitute aircraft, the flight is treated as a charter flight provided by the aircraft management services provider to the aircraft owner, regardless of whether the aircraft owner is on the flight, and the aircraft owner is treated as the charterer of such flight. If the flight constitutes taxable transportation, as defined in section 4262 of the Code, the tax imposed by section 4261(a) applies, unless the flight is exempt from such tax by reason of an exemption other than the aircraft management services exemption. See section 4261(b) and (c) for other taxes that may apply to flights provided by an aircraft management services provider to an aircraft owner on substitute aircraft.

  (ii) General rule for flights provided on substitute aircraft. In cases where an aircraft management services provider provides a flight to an aircraft owner on a substitute aircraft and an allocation is required, the rule in paragraph (c)(1) of this section applies in determining the tax base. In all other cases, the tax base and the tax imposed by section 4261(a) thereon must be determined in accordance with the rules of § 49.4261-7(h)(1), unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption.

  (iii) Special rule for for-hire flights provided on substitute aircraft. In cases where a substitute aircraft is used to provide a for-hire flight and an amount is paid for the flight by someone other than the aircraft owner, the tax base and the tax imposed by section 4261(a) thereon must be determined in accordance with the rules in § 49.4261-7(h)(2), unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption.

• Treas. Reg. §49.4261-10(d)Choice of flight rules. Show full text ▾ Collapse ▴

  Choice of flight rules. Whether a flight on an aircraft owner's aircraft operates pursuant to the rules under FARs Part 91 (14 CFR part 91) or pursuant to the rules under FARs Part 135 does not affect the application of section 4261(e)(5).

• Treas. Reg. §49.4261-10(e)Aircraft available for hire. Show full text ▾ Collapse ▴

  Aircraft available for hire. Whether an aircraft owner permits an aircraft management services provider or other person to use its aircraft to provide for-hire flights (for example, when the aircraft is not being used by the aircraft owner or when the aircraft is being moved in deadhead service) does not affect the application of section 4261(e)(5). However, an amount paid for for-hire flights on the aircraft owner's aircraft, except payments made by the aircraft owner, does not qualify for the aircraft management services exemption under section 4261(e)(5). Therefore, an amount paid by someone other than the aircraft owner for a for-hire flight on the aircraft owner's aircraft is subject to the tax imposed by section 4261 unless the flight is otherwise exempt from such tax by reason of an exemption other than the aircraft management services exemption. See § 49.4261-7(h) for rules relating to the application of the tax imposed by section 4261 on amounts paid for certain charter flights.

• Treas. Reg. §49.4261-10(f)Billing methods. Show full text ▾ Collapse ▴

  Billing methods. Except as otherwise provided in this section, the method an aircraft management services provider bills, invoices, or otherwise charges an aircraft owner for aircraft management services, whether by specific itemization of costs, flat monthly or hourly fee, or otherwise, does not affect the application of section 4261(e)(5).

• Treas. Reg. §49.4261-10(g)Multiple aircraft management services providers not disqualifying. Show full text ▾ Collapse ▴

  Multiple aircraft management services providers not disqualifying. Whether an aircraft owner pays amounts to more than one aircraft management services provider for aircraft management services does not affect the application of section 4261(e)(5).

• Treas. Reg. §49.4261-10(h)Examples. Show full text ▾ Collapse ▴

  Examples. The following examples illustrate the provisions of this section.

  (1) Example 1—(i) Facts. During the first quarter of 2021, an aircraft owner pays a $3,000 monthly management fee to an aircraft management services provider for services related to operating the aircraft owner's aircraft. The aircraft owner used its own aircraft for all but one of the flights the owner took during the period. On the one occasion that the aircraft owner's aircraft was unavailable when the aircraft owner wanted to fly, the aircraft management services provider used a substitute aircraft to transport the aircraft owner. The flight was within the continental United States and the aircraft owner received no compensation for the transportation of other passengers on the flight. The aircraft owner paid $1,000 for the flight on the substitute aircraft. The aircraft management services provider included the $1,000 charge for the substitute aircraft as a separate line item on the monthly management fee invoice.

  (ii) Analysis. The tax imposed by section 4261(a) applies to services that do not qualify for the section 4261(e)(5) exemption; in this case, the flight provided on the substitute aircraft. The flight provided on the substitute aircraft is treated as a charter flight for purposes of the tax imposed by section 4261(a), and the owner is treated as the charterer of the flight. The amount paid by the aircraft owner for the flight on the substitute aircraft is the section 4261(a) tax base. The monthly invoice from the aircraft management services provider to the aircraft owner included a line item in the amount of $1,000 for the charter flight. Because $1,000 is the actual amount paid for the flight, this amount is the section 4261(a) tax base. The tax imposed by section 4261(b) also applies to the flight on a per-passenger basis. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b).

  (2) Example 2—(i) Facts. Same facts as in paragraph (h)(1) of this section (Example 1), except the invoice does not show the amount paid for the flight on the substitute aircraft and that amount is not otherwise separable from the monthly management fee. The fair market value of the flight on the substitute aircraft is $1,000.

  (ii) Analysis. The tax imposed by section 4261(a) applies to the flight provided on the substitute aircraft. The amount paid for the flight on the substitute aircraft is not otherwise separable from the monthly management fee. Because $1,000 is the fair market value of the flight, and such amount does not exceed the $3,000 monthly management fee paid by the aircraft owner, this amount is the section 4261(a) tax base. The tax imposed by section 4261(b) also applies to the flight on a per-passenger basis. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b).

  (3) Example 3—(i) Facts. An aircraft owner pays a monthly management fee to an aircraft management services provider for aircraft management services related to the aircraft owner's aircraft. When the aircraft is not being used by the owner, the owner sometimes permits a charter company to use the aircraft to provide charter flights. At other times when the aircraft is not being used by the owner, the owner permits a tour operator to use the aircraft for flightseeing tours. All charter and flightseeing flights on the aircraft constitute taxable transportation, as that term is defined in section 4262, and no exemptions (other than section 4261(e)(5)) apply. No charter or flightseeing flights are provided on a substitute aircraft. The aircraft's maximum certificated takeoff weight is 7,000 pounds.

  (ii) Analysis. Amounts paid by the aircraft owner to the aircraft management services provider for aircraft management services related to the aircraft owner's aircraft are exempt under section 4261(e)(5). Amounts paid by the charterer or passengers for the charter flights are subject to tax under section 4261(a) and (b). See § 49.4261-7(h) for rules relating to the application of the tax imposed by section 4261 on amounts paid for charter flights. See § 49.4261-2(b) for rules regarding the application of the tax imposed by section 4261(b). Amounts paid by flightseeing customers for flightseeing tours are also subject to tax under section 4261(a) and (b). If a payment for a flightseeing tour includes charges for nontransportation services, the charges for the nontransportation services may be excluded in computing the tax payable provided the payments are separable and provided in exact amounts. See § 49.4261-2(c).

• Treas. Reg. §49.4261-10(i)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. This section applies to amounts paid on and after January 19, 2021.

• Treas. Reg. §49.4261-2Application of tax Show full text ▾ Collapse ▴

  (a) Tax on total amount paid. The tax imposed by section 4261(a) of the Internal Revenue Code (Code) is measured by the total amount paid for taxable transportation, whether paid in cash or in kind.

  (b) Tax on transportation of each person. The taxes imposed by section 4261(b) and (c) of the Code are head taxes and, therefore, apply on a per-passenger basis. The taxes apply to each passenger for whom an amount is paid, regardless of whether the payment is made as a single lump sum or is made individually for each passenger. In the case of charter flights for which a fixed amount is paid, the section 4261(b) and (c) taxes are computed by multiplying the applicable rate of tax by the number of passengers transported on the aircraft.

  (c) Charges for nontransportation services. Where a payment covers charges for nontransportation services as well as for transportation of a person, such as charges for meals, hotel accommodations, etc., the charges for the nontransportation services may be excluded in computing the tax payable with respect to such payment, provided such charges are separable and are shown in the exact amounts thereof in the records pertaining to the transportation charge. If the charges for nontransportation services are not separable from the charge for transportatinon of the person, the tax must be computed upon the full amount of the payment.

  (d) Applicability date. Paragraphs (a) and (b) of this section apply to amounts paid on and after January 19, 2021. For rules that apply before that date, see 26 CFR part 49, revised as of April 1, 2020.

• Treas. Reg. §49.4261-2(a)Tax on total amount paid. Show full text ▾ Collapse ▴

  Tax on total amount paid. The tax imposed by section 4261(a) of the Internal Revenue Code (Code) is measured by the total amount paid for taxable transportation, whether paid in cash or in kind.

• Treas. Reg. §49.4261-2(b)Tax on transportation of each person. Show full text ▾ Collapse ▴

  Tax on transportation of each person. The taxes imposed by section 4261(b) and (c) of the Code are head taxes and, therefore, apply on a per-passenger basis. The taxes apply to each passenger for whom an amount is paid, regardless of whether the payment is made as a single lump sum or is made individually for each passenger. In the case of charter flights for which a fixed amount is paid, the section 4261(b) and (c) taxes are computed by multiplying the applicable rate of tax by the number of passengers transported on the aircraft.

• Treas. Reg. §49.4261-2(c)Charges for nontransportation services. Show full text ▾ Collapse ▴

  Charges for nontransportation services. Where a payment covers charges for nontransportation services as well as for transportation of a person, such as charges for meals, hotel accommodations, etc., the charges for the nontransportation services may be excluded in computing the tax payable with respect to such payment, provided such charges are separable and are shown in the exact amounts thereof in the records pertaining to the transportation charge. If the charges for nontransportation services are not separable from the charge for transportatinon of the person, the tax must be computed upon the full amount of the payment.

• Treas. Reg. §49.4261-2(d)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. Paragraphs (a) and (b) of this section apply to amounts paid on and after January 19, 2021. For rules that apply before that date, see 26 CFR part 49, revised as of April 1, 2020.

• Treas. Reg. §49.4261-3Payments made within the United States Show full text ▾ Collapse ▴

  (a) Transportation beginning and ending in the United States or the 225-mile zone. The taxes imposed by section 4261(a) and (b) of the Internal Revenue Code (Code) applies to payments made within the United States for transportation which begins in the United States or in the 225-mile zone and ends in the United States or in the 225-mile zone. For example, an amount paid within the United States for transportation between New York and Montreal, Canada; between Vancouver, Canada, and Windsor, Canada; or between Nogales, Mexico, and Hermosillo, Mexico, would be fully taxable under section 4261(a) and (b). See section 4262(c) (2) and paragraph (b) of § 49.4262-3 for the definition of the term “225-mile zone”.

  (b) Other transportation. In the case of transportation, other than that described in paragraph (a) of this section, for which payment is made in the United States, the taxes imposed by section 4261(a) and (b) apply with respect to the amount paid for that portion of such transportation by air which is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if such portion is not a part of uninterrupted international air transportation within the meaning of section 4262(c)(3) of the Code and § 49.4262-3(c). Transportation that:

  (1) Begins in the United States or the 225-mile zone and ends outside such area,

  (2) Begins outside the United States or the 225-mile zone and ends inside such area, or

  (3) Begins outside the United States and ends outside such area, is taxable only with respect to the portion of the transportation by air which is directly or indirectly from one port or station in the United States to another port or station in the United States, but only if such portion is not a part of “uninterrupted international air transportation” within the meaning of section 4262(c)(3) and § 49.4262-3(c). Thus, on a trip by air from Chicago to London, England, with a stopover at New York, for which payment is made in the United States, if the portion from Chicago to New York is not a part of “uninterrupted international air transportation” within the meaning of section 4262(c)(3) and § 49.4262-3(c), the taxes would apply to the part of the payment which is applicable to the transportation from Chicago to New York. However, if the portion from Chicago to New York is a part of “uninterrupted international air transportation” within the meaning of section 4262(c)(3) and § 49.4262-3(c), the taxes would not apply.

  (c) Method of computing tax on taxable portion. Where a payment is made for transportation which is partially taxable under paragraph (b) of this section, the tax imposed by section 4261(a) may be computed on that proportion of the total amount paid which the mileage of the taxable portion of the transportation bears to the mileage of the entire trip.

  (d) Cross reference. See section 4262(b) of the Code and § 49.4262-2 for a partial exclusion with respect to amounts paid for certain transportation.

  (e) Applicability date. This section applies to amounts paid on and after January 19, 2021. For rules that apply before that date, see 26 CFR part 49, revised as of April 1, 2020.

• Treas. Reg. §49.4261-3(a)Transportation beginning and ending in the United States or the 225-mile zone. Show full text ▾ Collapse ▴

  Transportation beginning and ending in the United States or the 225-mile zone. The taxes imposed by section 4261(a) and (b) of the Internal Revenue Code (Code) applies to payments made within the United States for transportation which begins in the United States or in the 225-mile zone and ends in the United States or in the 225-mile zone. For example, an amount paid within the United States for transportation between New York and Montreal, Canada; between Vancouver, Canada, and Windsor, Canada; or between Nogales, Mexico, and Hermosillo, Mexico, would be fully taxable under section 4261(a) and (b). See section 4262(c) (2) and paragraph (b) of § 49.4262-3 for the definition of the term “225-mile zone”.