Tax Bill Wins Praise for Expensing, Managed Fee Stances

Negotiators on Capitol Hill agreed to retain two key provisions in the final version of the tax overhaul package: one that would extend immediate expensing measures to both used and new aircraft and another clarifying that the 7.5 percent air transportation tax does not apply to aircraft management fees.

The bill would allow for the write-off of the expenses for both used and new aircraft in one year. Past “bonus” depreciation measures have covered only new aircraft. Currently, businesses depreciate aircraft over five years. The bill repeals like-kind exchanges for business property, but the National Business Aviation Association said it believes the immediate-expensing measure will offset that elimination. The immediate-expensing measure is set to expire in 2022, but has a phaseout period through 2026. "It is a priority for NBAA and will help provide the tools necessary to grow our economy,” said NBAA president and CEO Ed Bolen.

The managed aircraft measure, meanwhile, will provide certainty on the tax treatment of the fees for the first time, bringing to an end an issue that that had been at the forefront for management businesses for years. The issue became particularly critical after a 2012 IRS Chief Counsel opinion left aircraft management firms vulnerable to back taxes and penalties. The IRS had audited a number of companies, assessing hefty taxes on the management fees. But after an outcry from industry, the IRS put the opinion on hold in May 2013 and stopped enforcing the audit findings surrounding the fees, pending clarification. However, the agency still has not issued a clarification.

The NBAA noted that the legislation contains other helpful provisions, including the reduction of the corporate tax rate from 35 to 21 percent, as well as a new 20 percent deduction for pass-through businesses. The association added it would work with a broad coalition to restore like-kind exchanges.