As a general matter, amounts paid for taxable transportation to an entity that has
possession, command, and control of the aircraft are taxable under section 4261. The
entity that controls the pilot of an aircraft, such as the lessor under a “wet lease”
arrangement, has possession, command, and control of the aircraft. Cite: Rev. Rul. 60-
311, 1960-2 C.B. 341.
Consistent with these concepts, Rev. Rul. 58-215 holds that a corporate aircraft owner,
who contracted with an airline company for the operation and maintenance of the aircraft,
but retained exclusive control over the aircraft crew, was not being provided taxable
transportation by the airline company under section 4261. Cite: Rev. Rul. 58-215, 1958-
1 C.B. 439. In contrast, Rev. Rul. 74-123 concludes that where an aviation company
provided air transportation for a federal agency on aircraft owned by the agency, the
service provided by the company when it used agency planes was essentially the same
service provided by the company when it used its own aircraft. Thus, in both situations
under Rev. Rul. 74-123, the company was providing taxable air transportation. Cite:
Rev. Rul. 74-123, 1974-1 C.B. 318.
The conclusions in Rev. Rul. 58-215 and Rev. Rul. 74-123 are not inconsistent because
they are based on different factual situations. Although in both rulings title to the aircraft
remained with the entity whose personnel were being transported, the aircraft
management company in Rev. Rul. 58-215 was acting as the aircraft owner's agent in the
operation of the aircraft, and the owner had exclusive control of the pilots, maintained
insurance, and paid the operating expenses of the aircraft. However, in Rev. Rul. 74-123,
the aircraft management company was acting as a principal in providing air transportation
to the federal agency. The aircraft management company provided the aircraft crew and
support personnel and was responsible under the contract for operations, maintenance,
and insurance expenses. The provision of the air transportation service to the federal
agency when the agency-owned aircraft were used was essentially the same as when
company-owned aircraft were used.
Generally, fractional aircraft owners are required to purchase or lease undivided interests
in an aircraft. The Operative Agreements executed at the time of purchase effectively
allow the Program Manager to treat the program aircraft as part of a charter fleet. The
Program Manager supplies the pilots for the aircraft and ensures they maintain the
training necessary to pilot the aircraft; therefore, the Program Manager has command
over the pilots. Even though, in some cases, the owners may designate which pilots they
prefer, the Program Manager has ultimate control over assignment of crews.
In addition, the Program Manager is responsible for operations, maintenance, and
insurance expenses of an aircraft. If an aircraft in which a fractional aircraft owner has
an interest is not available for the fractional aircraft owner’s use at a particular time, then
under the Management Agreement and the Master Interchange Agreement, the Program
Manager may provide another aircraft from the fractional program. If no aircraft is
available from the fractional program, the Program Manager must provide the fractional
aircraft owner with the use of a suitable and comparable replacement aircraft from
another source. Because of the complexities with scheduling fractional aircraft owners
on their own aircraft, it is not uncommon for a fractional aircraft owner to fly
infrequently on its own aircraft.
Excise Tax – Air Transportation 7- 8
Audit Techniques Guide Revised 04/08