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Taking off for charity
Thinking about making your aircraft available for charitable flights? Before you do, be sure you understand the relevant FAA and IRS rules. If you don't, you might wind up needing almost as much help as the charity.
The first step is to make sure you can actually operate the flight. In part, this depends on whether you expect the charity to reimburse your expenses. The FAA will treat such reimbursements as compensation-and flights for compensation must generally be operated under a commercial operating or air carrier certificate. So if you operate your aircraft under Federal Aviation Regulations Part 91, don't plan on charging anything for a charitable flight-not even a share of direct operating costs-unless you're certain you have a right to do so under FAA regulations.
Keep in mind that the FAA and DOT both define "compensation" very broadly. Basically, any form of benefit or remuneration can be considered compensation if it's received in exchange for air transportation.
In one National Transportation Safety Board case, a pilot provided two roundtrip flights for a charitable foundation. Although the foundation didn't pay for them, it did provide the pilot with a letter stating that the trip's expenses had been donated to the charity to facilitate their deduction for federal income tax purposes. An administrative law judge found that the deduction represented compensation for the flight, requiring it to be conducted under a commercial certificate. An NTSB panel later overturned sanctions against the pilot on procedural grounds but didn't challenge the substantive conclusion, which the FAA has since cited with approval.
However, the FAA restrictions on deductions for charitable flights seemed to directly conflict with the IRS policy of permitting such deductions and made the aviation regulators look heartless. The agency issued a statement supporting charitable flights and said that it won't consider charitable deductions of such costs, "standing alone, as constituting 'compensation or hire'."
At a glance, this seems to clear the way for deducting costs of charitable flights operated under FAR Part 91. But don't overlook a key phrase: "standing alone." In other words, the tax deduction by itself won't make an operation commercial, but the FAA reserves the right to conclude that a flight wasn't entirely a "humanitarian effort" and that the deduction therefore represented impermissible compensation. Consequently, the only way to avoid the FAA problem and still take the deduction is often to operate the flight under FAR Part 135 or another commercial provision.
If the FAA allows the deduction, what writeoffs are you entitled to take? The IRS says you can deduct expenses directly attributable to charitable flights. This would include operating costs such as fuel but not "fixed" expenses like insurance that you would have had even if the flight hadn't occurred.
The IRS standard rarely poses a problem for the pilot who makes his own aircraft available for a charitable flight, but it does present a dilemma regarding business aircraft. Fixed expenses are tax deductible only to the extent that the aircraft is employed in a trade or business and, by definition, charitable flights don't seem to qualify as business flights. As a result, charitable flights can actually cause a business aircraft owner to forfeit deductions for fixed expenses, such as depreciation.
A way out of this dilemma is to structure the flights as business trips. Many organizations that facilitate charitable use of corporate aircraft arrange for the aircraft owner to provide a flight to an airport where the aircraft is going anyway. That way, there's no need to deduct expenses for charitable purposes because those expenses are already deductible as business costs.
Alternatively, the company can try to infuse a business purpose into charitable flights. For example, a charity might agree to mention in its ads that the company is providing the flights, or it might permit the company to advertise that fact. Such strategies might provide sufficient business purpose to allow expenses for charitable flights to be deductible as business costs, but they create another problem: to the FAA, the publicity would represent compensation, which would likely mean the flights could no longer be conducted under FAR Part 91.
In sum, between FAA restrictions on receipt of "compensation" under FAR Part 91 and the inability to deduct any fixed expenses, you may find it hard to offer your aircraft for charitable flights. Despite your good intentions, such flights can cost you plenty and even be unlawful if you fail to observe relevant regulatory requirements.