4990 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 

official must file an information return, 

and furnish the written statement to the 

payor, as provided by the instructions to 

Form 1098–F, or any successor form, 

including instructions as to the amounts 

(if any) to include on Form 1098–F, only 

if the government or governmental 

entity reasonably expects that the 

aggregate amount required to be paid or 

incurred pursuant to the order or 

agreement, relating to the violation of 

any law, or the investigation or inquiry 

into the potential violation of any law, 

will equal or exceed the threshold 

amount under paragraph (f)(6) of this 

section. 

(f) Definitions. The following 

definitions apply under this section: 

(1) Appropriate official—(i) One 

government or governmental entity. If 

the government or governmental entity 

has not assigned one of its officers or 

employees to comply with the reporting 

requirements of paragraph (a), (b), and 

(c) of this section, the term appropriate 

official means the officer or employee of 

a government or governmental entity 

having control of the suit, investigation, 

or inquiry. If the government or 

governmental entity has assigned one of 

its officers or employees to comply with 

the reporting requirements of paragraph 

(a), (b), and (c) of this section, such 

officer or employee is the appropriate 

official. 

(ii) More than one government or 

governmental entity—(A) In general. If 

more than one government or 

governmental entity is a party to an 

order or agreement, only the appropriate 

official of the government or 

governmental entity listed first on the 

most recently executed order or 

agreement is responsible for complying 

with all reporting requirements under 

paragraphs (a), (b), and (c) of this 

section, unless another appropriate 

official is appointed by agreement under 

paragraph (f)(1)(ii)(B) of this section. 

(B) By agreement. The governments or 

governmental entities that are parties to 

an order or agreement may agree to 

appoint one or more other appropriate 

officials to be responsible for complying 

with the information reporting 

requirements of paragraphs (a), (b), and 

(c) of this section. 

(2) Government. For purposes of this 

section, government means the 

government of the United States, a State, 

the District of Columbia, or a political 

subdivision (such as a local government 

unit) of any of the foregoing. 

(3) Governmental entity. For purposes 

of this section, governmental entity 

means— 

(i) A corporation or other entity 

serving as an agency or instrumentality 

of a government (as defined in 

paragraph (f)(2) of this section), or 

(ii) A nongovernmental entity treated 

as a governmental entity as described in 

paragraph (f)(4) of this section. 

(4) Nongovernmental entity treated as 

governmental entity. For purposes of 

this section, the definition of 

nongovernmental entity treated as a 

governmental entity as set forth in 

§ 1.162–21(e)(3) applies but does not 

include a nongovernmental entity of a 

territory of the United States, including 

American Samoa, Guam, the Northern 

Mariana Islands, Puerto Rico, or the U.S. 

Virgin Islands, a foreign country, or an 

Indian tribe. 

(5) Payor. The payor is the person, as 

defined in section 7701(a)(1), which, 

pursuant to an order or agreement, has 

paid or incurred, or is liable to pay or 

incur, an amount to, or at the direction 

of, a government or governmental entity 

in relation to the violation or potential 

violation of any law. In general, the 

payor will be the person to which 

section 162(f) and § 1.162–21 of the 

regulations apply. 

(6) Threshold amount. The threshold 

amount is $50,000. 

(g) Applicability date. The rules of 

this section apply only to orders and 

agreements, pursuant to suits and 

agreements, which become binding 

under applicable law on or after January 

1, 2022, determined without regard to 

whether all appeals have been 

exhausted or the time for filing an 

appeal has expired. 

Sunita Lough, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: January 7, 2021. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2021–00741 Filed 1–14–21; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 40 and 49 

[TD 9948] 

RIN 1545–BP37 

Excise Taxes; Transportation of 

Persons by Air; Transportation of 

Property by Air; Aircraft Management 

Services 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations relating to the excise taxes 

imposed on certain amounts paid for 

transportation of persons and property 

by air. Specifically, the final regulations 

relate to the exemption for amounts 

paid for certain aircraft management 

services. The final regulations also 

amend, revise, redesignate, and remove 

provisions of existing regulations that 

are out-of-date or obsolete and generally 

update the existing regulations to 

incorporate statutory changes, case law, 

and other published guidance. The final 

regulations affect persons that provide 

air transportation of persons and 

property, and persons that pay for those 

services. 

DATES: 

Effective Date: These regulations are 

effective January 14, 2021. 

Applicability Dates: For dates of 

applicability, see §§ 40.0–1(e), 49.4261– 

1(g), 49.4261–2(d), 49.4261–3(e), 

49.4261–7(k), 49.4261–9(c), 49.4261– 

10(i), 49.4262–1(f), 49.4262–2(e), 

49.4262–3(e), 49.4281–1(e), 49.4263– 

1(b), 49.4263–3(b), 49.4271–1(g), and 

49.4721–2. 

FOR FURTHER INFORMATION CONTACT: 

Michael H. Beker at (202) 317–6855 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document amends the Facilities 

and Services Excise Tax Regulations (26 

CFR part 49) under sections 4261, 4262, 

4263, 4264, 4271, 4281, and 4282 of the 

Internal Revenue Code (Code). This 

document also amends the Excise Tax 

Procedural Regulations (26 CFR part 

40). 

Sections 4261 and 4271 impose excise 

taxes on certain amounts paid for 

transportation of persons or property, 

respectively, by air, collectively referred 

to herein as ‘‘air transportation excise 

tax.’’ Section 13822 of Public Law 115– 

97, 131 Stat. 2054, 2182 (2017), 

commonly referred to as the Tax Cuts 

and Jobs Act (TCJA), added an 

exception to the air transportation 

excise tax in new section 4261(e)(5). 

Specifically, section 4261(e)(5)(A) 

provides that ‘‘[n]o tax shall be imposed 

by [section 4261] or section 4271 on any 

amounts paid by an aircraft owner for 

aircraft management services related 

to—(i) maintenance and support of the 

aircraft owner’s aircraft, or (ii) flights on 

the aircraft owner’s aircraft.’’ 

Section 4261(e)(5)(B) defines the term 

‘‘aircraft management services’’ to 

include: (a) Assisting an aircraft owner 

with administrative and support 

services, such as scheduling, flight 

planning, and weather forecasting; (b) 


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obtaining insurance; (c) maintenance, 

storage, and fueling of aircraft; (d) 

hiring, training, and provision of pilots 

and crew; (e) establishing and 

complying with safety standards; and (f) 

such other services as are necessary to 

support flights operated by an aircraft 

owner. 

Section 4261(e)(5)(C)(i) provides that 

the term ‘‘aircraft owner’’ includes a 

person who leases an aircraft other than 

under a ‘‘disqualified lease.’’ Section 

4261(e)(5)(C)(ii) defines the term 

‘‘disqualified lease’’ for purposes of 

section 4261(e)(5)(C)(i) as ‘‘a lease from 

a person providing aircraft management 

services with respect to the aircraft (or 

a related person (within the meaning of 

section 465(b)(3)(C)) to the person 

providing such services), if the lease is 

for a term of 31 days or less.’’ 

Finally, section 4261(e)(5)(D) provides 

that in the case of amounts paid to any 

person which (but for section 

4261(e)(5)) are subject to air 

transportation excise tax, a portion of 

which consists of amounts described in 

section 4261(e)(5)(A), section 4261(e)(5) 

‘‘shall apply on a pro rata basis only to 

the portion which consists of amounts 

described in’’ section 4261(e)(5)(A). The 

Conference Report accompanying the 

TCJA, H.R. Rep. No. 115–466, at 536 

(2017) (Conference Report), provides 

that in the event that a monthly 

payment made to an aircraft 

management company is allocated in 

part to exempt services and flights on 

the aircraft owner’s aircraft, and in part 

to flights on aircraft other than that of 

the aircraft owner, air transportation 

excise tax must be collected on that 

portion of the payment attributable to 

flights on aircraft not owned by the 

aircraft owner. 

On July 31, 2020, a notice of proposed 

rulemaking (REG–112042–19) was 

published in the Federal Register (85 

FR 46032) under sections 4261, 4262, 

4263, 4264, 4271, 4281, and 4282 of the 

Code, and part 40 of the Excise Tax 

Procedural Regulations (proposed 

regulations). No public hearing was 

requested or held. The Department of 

the Treasury (Treasury Department) and 

the IRS received three comments in 

response to the proposed regulations. 

The comments addressing the proposed 

regulations are summarized in the 

Summary of Comments and Explanation 

of Revisions section of this preamble. 

All comments were considered and are 

available at www.regulations.gov or 

upon request. After full consideration of 

the comments received, this Treasury 

decision adopts as final regulations the 

proposed regulations with the 

modifications described in the 

Summary of Comments and Explanation 

of Revisions section of this preamble. 

Summary of Comments and 

Explanation of Revisions 

I. Overview 

The final regulations retain the basic 

approach and structure of the proposed 

regulations, with certain revisions and 

modifications. This Summary of 

Comments and Explanation of Revisions 

discusses these revisions and 

modifications as well as the comments 

received in response to the proposed 

regulations. The final regulations 

provide guidance under sections 4261, 

4262, 4263, 4264, 4271, 4281, and 4282 

of the Code related to air transportation 

excise tax. The final regulations also 

provide guidance under part 40 of the 

Excise Tax Procedural Regulations. 

Part II of this Summary of Comments 

and Explanation of Revisions discusses 

rules related to the exemption from air 

transportation excise tax for amounts 

paid for certain aircraft management 

services provided in section 4261(e)(5) 

of the Code (aircraft management 

services exemption). Part III of this 

Summary of Comments and Explanation 

of Revisions discusses § 49.4261–1 and 

other rules of general applicability 

related to the excise tax on amounts 

paid for the transportation of persons by 

air imposed by section 4261, as well as 

rules in § 49.4261–7(h)(2) related to 

aircraft charters. See the Explanation of 

Provisions section of the proposed 

regulations for a discussion of the rules 

under 26 CFR part 40 and 26 CFR part 

49 that were included in the proposed 

regulations, for which no comments 

were received. Those proposed rules are 

adopted by this Treasury decision— 

except as discussed in parts II and III of 

this Summary of Comments and 

Explanation of Revisions—without 

change. 

II. Aircraft Management Services 

Exemption Rules 

a. Definition of Aircraft Management 

Services 

Proposed § 49.4261–10(b)(1) defined 

the term ‘‘aircraft management services’’ 

to mean the services listed in section 

4261(e)(5)(B), as well as ‘‘other 

services.’’ Proposed § 49.4261– 

10(b)(1)(ii) defined ‘‘other services’’ as 

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 by an aircraft 

management services provider to an 

aircraft owner, that is necessary to keep 

the aircraft owner’s aircraft in an 

airworthy state or 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. 

A commenter stated that the term 

‘‘airworthy’’ generally indicates that an 

aircraft—or one or more of its 

component parts—meets its type design 

and is in a condition of safe operations. 

The commenter noted that some 

services provided by an aircraft 

management services provider in 

maintaining an aircraft do not directly 

pertain to the airworthiness of an 

aircraft. These services include, but are 

not limited to, upgrades in equipment, 

installation of optional equipment, 

optional modifications, refurbishment of 

an aircraft interior, and painting of an 

aircraft’s exterior. The commenter 

suggested that the final regulations 

remove the phrase ‘‘that is necessary to 

keep the aircraft owner’s aircraft in an 

airworthy state’’ from the definition of 

‘‘other services.’’ 

The Treasury Department and the IRS 

agree with the commenter that the final 

regulations should clarify that the 

definition of aircraft management 

services is not limited to those services 

necessary to keep an owner’s aircraft in 

an airworthy state. As a result, the final 

regulations adopt the change suggested 

by the commenter and remove the 

phrase ‘‘that is necessary to keep the 

aircraft owner’s aircraft in an airworthy 

state’’ from final § 49.4261–10(b)(1)(ii). 

b. Definition of Aircraft Owner 

i. Leases 

Proposed § 49.4261–10(b)(3)(i) 

provided that the term ‘‘aircraft owner’’ 

means an individual or entity that leases 

or owns (that is, holds title to or 

substantial incidents of ownership in) 

an aircraft managed by an aircraft 

management services provider, 

commonly referred to as a ‘‘managed 

aircraft.’’ Proposed § 49.4261–10(b)(3)(i) 

further provided that the term ‘‘aircraft 

owner’’ does not include a lessee of an 

aircraft under a disqualified lease, as 

defined in proposed § 49.4261–10(b)(4). 

Regarding leases that qualify a person 

as an aircraft owner under proposed 

§ 49.4261–10(b)(3)(i), a commenter 

noted that while many aircraft leases are 

in writing and contain provisions that 

make it clear that the arrangement 

constitutes a lease, that is not the case 

for all aircraft leasing arrangements. The 

commenter further noted that courts 

have found that the basic attributes of a 

lease are ‘‘the right to possess, use, and 

control the aircraft’’ (citing Petit Jean 

Air Service, Inc v. U.S., 74–1 U.S.T.C. 


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16, 135 (E.D. Ark. 1974)). To this end, 

the commenter suggested that the final 

regulations add to the end of § 49.4261– 

10(b)(3)(i) the sentence ‘‘An 

arrangement (whether written, oral, or 

implied) that transfers the right to 

possess, use, and control an aircraft to 

an individual or entity qualifies as a 

lease for the purposes of determining 

whether that individual or entity meets 

the definition of aircraft owner.’’ 

The Treasury Department and the IRS 

note that the suggested ‘‘right to possess, 

use, and control an aircraft’’ language 

from the commenter is nearly identical 

to the possession, command, and 

control test created through existing 

published guidance. As described in the 

preamble to the proposed regulations, 

possession, command, and control is a 

facts-and-circumstances analytical 

framework that is used to determine 

whether a person is providing taxable 

transportation to another person in 

cases where each of the parties 

contribute some, but not all, of the 

elements necessary for complete air 

transportation services. The possession, 

command, and control test has caused 

confusion and uncertainty in the air 

transportation excise tax area for 

decades; in fact, it is partly for that 

reason—and disagreements between the 

IRS and taxpayers over the application 

of the possession, command, and 

control test to aircraft management 

services arrangements—that section 

4261(e)(5) was added to the Code. See, 

e.g., Conference Report at 535. As 

explained in the preamble to the 

proposed regulations, section 4261(e)(5) 

directly addresses a situation that, but 

for section 4261(e)(5), would be 

analyzed using the possession, 

command, and control test. The 

preamble to the proposed regulations 

further explained that in situations to 

which the aircraft management services 

exemption applies, the possession, 

command, and control test is not 

relevant. 

As a result, the Treasury Department 

and the IRS decline to introduce into 

the final regulations a test that is similar 

to a test that has been the source of 

confusion, uncertainty, disagreement, 

and difficulties in administration. 

Therefore, the final regulations do not 

adopt the language the commenter 

proposed to be added to the end of 

§ 49.4261–10(b)(3)(i) and do not provide 

a special definition of the term ‘‘lease’’ 

solely for purposes of the aircraft 

management services exemption. 

ii. Owner Trusts 

A commenter requested clarification 

regarding whether trustees and 

beneficiaries of ‘‘owner trusts’’ qualify 

as aircraft owners for purposes of the 

aircraft management services 

exemption. The commenter described 

an owner trust as an ownership 

structure used for the limited purpose of 

registering an aircraft in the U.S. with 

the Federal Aviation Administration 

(FAA). The structure, which is 

sanctioned by the FAA, is commonly 

used by non-U.S. persons to satisfy the 

U.S. citizenship requirements 

applicable to registering an aircraft with 

the FAA. Most owner trusts are 

established using one of a small number 

of U.S.-based aviation trust companies— 

which are not related to the trust 

beneficiary—as trustee. The trustee 

holds legal title to the aircraft and 

satisfies the U.S. citizenship 

requirement for purposes of registering 

the aircraft with the FAA, thereby 

permitting registration in the U.S. of an 

aircraft that would otherwise be 

ineligible for such registration. 

The commenter stated that an owner 

trust agreement works in conjunction 

with an operating agreement that, 

generally, is separate from, but closely 

related to, the trust agreement. The 

operating agreement may contain 

explicit lease language or may instead 

use the term ‘‘license to use’’ and 

provides that the beneficiary holds the 

exclusive right to lease or license and to 

possess, use, and operate the aircraft 

(typically requiring a nominal rent or 

license payment to the trustee, or in 

some cases, no payment at all). 

Regardless of how the transfer of control 

is described in the operating agreement, 

the result is that the beneficiary holds 

the exclusive right to lease or license the 

aircraft, and to possess, use, and operate 

the aircraft. An operating agreement will 

usually require that the beneficiary 

retain the crew and maintain the aircraft 

per FAA guidance and manufacturer’s 

recommendations. The commenter 

stated that the relationship created 

through the operating agreement is 

consistent with the trustee’s status as a 

holder of only bare legal title, 

sometimes referred to as ‘‘nominal 

title,’’ to the aircraft. 

In addition, the commenter explained 

that the beneficiary of an owner trust 

holds many of the attributes of aircraft 

ownership, other than legal title. The 

attributes of aircraft ownership that the 

beneficiary possesses include: The right 

to any income generated by—and 

obligation to pay all expenses associated 

with—the aircraft; the upside benefit or 

downside risk as to the aircraft’s value; 

bearing the risk of loss; being 

considered the owner of the aircraft for 

Federal income tax purposes; and 

discretion as to when to sell the aircraft. 

The commenter noted that since both 

the trustee and the beneficiary of an 

owner trust are owners of interests in 

the aircraft, payments for aircraft 

management services from either party 

should be eligible for the aircraft 

management services exemption. The 

commenter further noted that regardless 

of whether the operating agreement is 

written in terms of a lease or a license, 

the arrangement is not a disqualified 

lease (as that term was defined in 

proposed § 49.4261–10(b)(4)). 

For purposes of section 4261(e)(5), 

such an operating agreement between 

the trustee and the beneficiary of an 

owner trust is treated as a lease, 

regardless of whether the document 

expressly refers to the arrangement as a 

lease. Therefore, under the terms of the 

operating agreement, the beneficiary of 

an owner trust is the lessee of the 

aircraft held in trust. Both section 

4261(e)(5)(C) and proposed § 49.4261– 

10(b)(3) recognize lessees, other than 

lessees under a disqualified lease, as an 

aircraft owner. 

Based on the foregoing, the final 

regulations include a definition of 

‘‘owner trust.’’ The final regulations also 

clarify that the beneficiary of an owner 

trust is an ‘‘aircraft owner’’ so long as 

the lease is not a disqualified lease. 

iii. Affiliated Groups, Disregarded 

Entities, and Other Close Relationships 

As discussed in the preamble to the 

proposed regulations, the proposed 

regulations applied the principle of 

statutory interpretation that, as matters 

of legislative grace, exemptions to tax 

should be narrowly construed. 

Therefore, the proposed regulations 

defined ‘‘aircraft owner’’ as an 

individual or entity that leases (other 

than under a disqualified lease) or owns 

(that is, holds title to or substantial 

incidents of ownership in) an aircraft 

managed by an aircraft management 

services provider. The proposed 

regulations did not include in the 

definition of ‘‘aircraft owner’’ persons 

that are related to the aircraft owner (for 

example, another member of the same 

affiliated group (as defined in section 

4282 of the Code)), but are not the 

aircraft owner itself. As a result, under 

the proposed regulations, the aircraft 

management services exemption 

applied only to payments for aircraft 

management services that are made by 

the actual aircraft owner or lessee. 

A commenter disagreed with the 

assertion in the preamble to the 

proposed regulations that treating 

payments from parties who are directly 

related to an aircraft owner as though 

they were from the aircraft owner, and 

thus exempt from air transportation 

excise tax, ‘‘would effectively expand 


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the exemption [provided in section 

4261(e)(5)] in a manner not authorized 

by Congress.’’ The commenter claimed 

that this assertion is at odds with other 

Code provisions and implies an unduly 

narrow and formalistic interpretation of 

the statute that is inconsistent with the 

flexible approach otherwise evinced in 

the proposed regulations. The 

commenter further claimed that the 

assertion has no basis in the legislative 

history, but rather the legislative history 

implies that at least some related-party 

payments of aircraft management fees 

should be excluded from air 

transportation excise tax under section 

4261(e)(5). 

The commenter noted that while the 

statute and legislative history are 

relatively silent about who or what the 

term ‘‘aircraft owner’’ includes, the 

legislative history enumerates several 

examples of what the term does not 

include. Specifically, the legislative 

history states that the term ‘‘aircraft 

owner’’ does not include ownership of 

stock in a commercial airline or 

participation in a fractional aircraft 

ownership program. The commenter 

stated that the legislative history 

expresses Congress’s concern about the 

use of the aircraft management services 

exemption to circumvent the ordinary 

application of air transportation excise 

tax as contemplated in other Code 

provisions. By negative inference, the 

commenter reasoned, Congress did not 

express any similar concerns if the 

aircraft management services exemption 

applied to payments made by a party 

related to the aircraft owner. The 

commenter asserted that the narrow 

interpretation of ‘‘aircraft owner’’ in the 

proposed regulations does nothing to 

further Congress’s goal of preventing 

arrangements designed to circumvent 

the ordinary application of air 

transportation excise tax. 

The commenter asserted that when an 

affiliated corporation in a corporate 

group pays for aircraft management 

services on behalf of an aircraft owning 

corporate entity within the group, there 

is no avoidance of air transportation 

excise tax. Further, the commenter 

asserted that there is statutory precedent 

for ignoring the distinction among 

corporate entities in the air 

transportation excise tax area; 

specifically, the commenter pointed to 

the affiliated group exemption provided 

in section 4282 of the Code. Under 

section 4282(a), if one member of an 

affiliated group is the owner or lessee of 

an aircraft, and such aircraft is not 

available for hire by persons who are 

not members of such group, air 

transportation excise tax does not apply 

to any payment received by one member 

of the affiliated group from another 

member of such group for services 

furnished to such other member in 

connection with the use of such aircraft. 

Citing the legislative history to section 

4282 (see S. Rep. No. 91–706 at 17–18, 

1970–1 C.B. 386), the commenter 

asserted that section 4282 captures 

Congress’s general approach to relatedparty payments in the area of air 

transportation excise tax; that is, 

Congress decided to ignore nominal 

ownership of an aircraft by one member 

of an affiliated group and instead looked 

to the true economic ownership of the 

aircraft by the group. The commenter 

asserted that the final regulations 

should do the same and ignore the 

formalities of nominal ownership of an 

aircraft and apply the aircraft 

management services exemption to 

payments by any party that is the true 

economic owner of the aircraft. 

The commenter requested that the 

Treasury Department and the IRS 

consider expanding the definition of 

‘‘aircraft owner’’ to include disregarded 

entities, members of an affiliated group, 

and family members. The commenter 

also noted that it is not uncommon for 

an individual to operate an aircraft but 

place title to the aircraft in a single 

member limited liability company 

(SMLLC) and that such arrangement is, 

in effect, a constructive lease, but that 

state law concepts of constructive leases 

will result in needless and complex 

controversy. 

Another commenter similarly 

requested that the Treasury Department 

and the IRS consider expanding the 

definition of ‘‘aircraft owner’’ to include 

the single member of a SMLLC that 

holds title to an aircraft. The commenter 

reasoned that if the member pays an 

aircraft management services provider 

for aircraft management services on 

behalf of the SMLLC, it is economically 

indistinguishable from a case in which 

the individual first transfers funds into 

the SMLLC and then the SMLLC pays 

the aircraft management services 

provider. In either situation, the 

commenter asserted, there is no 

circumvention of air transportation 

excise tax; the only difference is who 

writes the check paying the aircraft 

management services provider. 

The Treasury Department and the IRS 

continue to have the concerns described 

in the preamble to the proposed 

regulations. Specifically, the Treasury 

Department and the IRS are concerned 

that extending the aircraft management 

services exemption to payments made 

by certain related parties—as suggested 

by the commenters—would effectively 

ignore the requirement that payments be 

made by the ‘‘aircraft owner.’’ Such an 

interpretation would be inconsistent 

with a plain reading of the statute and 

would violate a fundamental principle 

of statutory construction—that effect 

must be given, if possible, to every word 

Congress uses in the statute. See U.S. v. 

Menasche, 348 U.S. 528, 538–539 

(1955). 

Further, as described in the preamble 

to the proposed regulations, a 

fundamental aspect of administering the 

Federal excise tax laws is respecting 

each entity as an entity separate from its 

owner. See § 1.1361–4(a)(8) of the 

Income Tax Regulations and 

§ 301.7701–2(c)(2)(v) of the Procedure 

and Administration Regulations. This 

longstanding treatment of a whollyowned entity as an entity separate from 

its owner for Federal excise tax 

purposes applies even though the entity 

may not be viewed as separate from its 

owner for Federal income tax purposes. 

Consistent with this longstanding 

treatment, final § 40.0–1(d) of the Excise 

Tax Procedural Regulations makes it 

clear that each business unit that is 

required to have a separate Employer 

Identification Number is treated as a 

separate person. The Treasury 

Department and the IRS decline to 

create what would effectively be an 

exception to the way certain entities are 

treated for Federal excise tax purposes 

because this would create unnecessary 

confusion among taxpayers and IRS 

examiners. For example, it would not be 

appropriate to respect an entity for fuel 

excise tax liability and reporting 

purposes but then disregard the same 

entity for purposes of the aircraft 

management services exemption even 

though a transaction may involve the 

same aircraft. 

Based on the foregoing, the final 

regulations do not generally incorporate 

the commenters’ request to expand the 

definition of ‘‘aircraft owner’’ to include 

disregarded entities, members of an 

affiliated group, or family members of 

the owner. Instead, the final regulations 

clarify that amounts paid for aircraft 

management services by a party related 

to the aircraft owner (including 

members of an affiliated group, 

members of a limited liability company, 

disregarded entities, and family 

members) are not amounts paid by the 

aircraft owner solely by virtue of the 

relationship between the aircraft owner 

and the related party. The final 

regulations further clarify that if one 

related party leases an aircraft to 

another 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, 


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provided the lease is not a disqualified 

lease and all other requirements of 

section 4261(e)(5) are satisfied. 

v. Principal-Agent 

Proposed § 49.4261–10(a)(1) provided, 

in relevant part, that the aircraft 

management services exemption does 

not apply to amounts paid to an aircraft 

management services provider on behalf 

of an aircraft owner (other than in a 

principal-agent scenario in which the 

aircraft owner is the principal). 

A commenter requested that the final 

regulations clarify what relationships 

qualify as a ‘‘principal-agent scenario’’ 

for purposes of qualifying payments for 

the aircraft management services 

exemption. The commenter noted that 

all entities, depending on the type of 

entity formation, have one or more 

officers, directors, managers, members 

or partners that may be in a principalagent relationship with an aircraft 

owner. Therefore, the commenter 

suggested that the final regulations 

clarify that for purposes of § 49.4261– 

10(a)(1), officers and directors of 

corporations, managers and members of 

limited liability companies (LLCs), and 

partners of a partnership are deemed 

agents when such corporations, LLCs, or 

partnerships are the aircraft owner. 

Alternatively, the commenter suggested 

that the final regulations clarify that the 

agency laws of the individual fifty states 

should be recognized for purposes of 

determining whether a principal-agent 

relationship exists between an aircraft 

owner and another person. 

As a general matter, for Federal tax 

purposes, state agency law applies in 

determining whether a principal-agent 

relationship exists. Likewise, in the 

context of the aircraft management 

services exemption, state law applies in 

determining whether the relationship 

between the aircraft owner and another 

person is a principal-agent relationship. 

Therefore, the final regulations adopt 

the principal-agent language from the 

proposed regulations as written. The 

Treasury Department and the IRS will 

consider providing additional guidance 

on this issue and invite comments 

regarding whether a principal-agent rule 

that relates specifically to the aircraft 

management services exemption is 

necessary. Any comments that favor 

additional guidance should include 

suggestions for how a more detailed 

principal-agent rule should be 

structured. Unless and until the 

Treasury Department and the IRS 

provide additional guidance, state 

agency law applies in determining 

whether a principal-agent relationship 

exists between the aircraft owner and 

another person. 

vi. Evidence That Payments Are Made 

by the Aircraft Owner 

Regarding proposed § 49.4261– 

10(a)(3), a commenter requested that the 

final regulations clarify what facts or 

evidence are sufficient to show that the 

aircraft owner is the party making the 

payments to the aircraft management 

services provider so that those payments 

qualify for the aircraft management 

services exemption. The commenter 

suggested that the final regulations 

provide that ‘‘reasonable 

documentation’’ from the aircraft owner 

stating that payments for aircraft 

management services originate from a 

source covered by the aircraft 

management services exemption will 

satisfy the aircraft management services 

provider’s obligation to determine 

whether a payment comes from a 

permissible source and constitutes 

adequate documentation thereof. The 

commenter believes that including this 

rule in the final regulations will 

improve administrability for both 

aircraft management services providers 

and the IRS. 

The task of verifying the source of 

every payment received by an aircraft 

management services provider for 

services related to an aircraft owner’s 

aircraft is a burdensome one for aircraft 

management services providers. 

Verification is important because if a 

payment is received from someone other 

than the aircraft owner (as that term is 

defined in the final regulations), the 

aircraft management services exemption 

does not apply and the aircraft 

management services provider must 

collect any applicable air transportation 

tax on the amount paid. If the aircraft 

management services provider fails to 

do so, section 4263(c) applies. See also 

§ 49.4261–1(b)(2). 

The Treasury Department and the IRS 

recognize that in the context of the 

aircraft management services 

exemption, it is important for aircraft 

management services providers to 

understand their obligations with regard 

to verifying that payments are made by 

aircraft owners and that failure to verify 

may trigger the application of section 

4263(c). However, because section 

4263(c) has broad implications for all 

members of the air transportation 

industry, issues related to section 

4263(c) require additional study and 

input from a broader cross-section of 

stakeholders in the air transportation 

industry. Accordingly, these issues 

should be addressed in a separate 

published guidance project. 

vii. Substantial Incidents of Ownership 

Proposed § 49.4261–10(b)(3)(i) 

provided, in relevant part, that the term 

‘‘aircraft owner’’ means an individual or 

entity that leases or owns (that is, holds 

title to or substantial incidents of 

ownership in) an aircraft managed by an 

aircraft management services provider, 

commonly referred to as a ‘‘managed 

aircraft.’’ The Treasury Department and 

IRS did not receive comments 

specifically relating to the ‘‘substantial 

incidents of ownership’’ language. 

However, the ‘‘substantial incidents of 

ownership’’ language is problematic 

because, among other things, it creates 

an opportunity for abuse by providing a 

mechanism by which parties can 

circumvent the disqualified lease rule in 

section 4261(e)(5)(C). For example, 

parties that wish to enter into an aircraft 

lease for 31 days or less could structure 

the transaction as a transfer of 

substantial incidents of ownership in 

the aircraft for a period of 31 days or 

less. By doing so, the parties could 

avoid creating a disqualified lease while 

still availing themselves of the 

exemption in section 4261(e)(5). 

Congress clearly did not intend for the 

aircraft management services exemption 

to apply in such situations as evidenced 

by the disqualified lease language in 

section 4261(e)(5)(C). Because of these 

concerns, the final regulations clarify 

that the phrase ‘‘substantial incidents of 

ownership’’ in § 49.4261–10(b)(3)(i) 

does not apply to an interest with a 

duration of 31 days or less. 

viii. Other Changes Related to the 

Definition of Aircraft Owner 

As stated earlier, proposed § 49.4261– 

10(b)(3)(i) defined ‘‘aircraft owner’’, in 

relevant part, in terms of ‘‘an individual 

or entity.’’ Final § 49.4261–10(b)(3)(i) 

replaces the phrase ‘‘individual or 

entity’’ with the word ‘‘person.’’ This 

change improves the precision of the 

aircraft owner definition because the 

Code provides a generally applicable 

definition of ‘‘person’’ in section 

7701(a)(1). This change also makes 

§ 49.4261–10(b)(3)(i) easier to read. 

b. Fractional Ownership Aircraft and 

Other Arrangements 

Proposed § 49.4261–10(b)(3)(ii) 

provided that 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 air 

transportation excise tax by reason of 

section 4261(j). Proposed § 49.4261– 

10(b)(3)(ii), referred to herein as the 


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‘‘other arrangements anti-abuse rule,’’ 

further provided that a participant in a 

business arrangement that seeks to 

circumvent the surtax imposed by 

section 4043 by operating outside of 

subpart K of 14 CFR part 91, and that 

allows an aircraft owner the right to use 

any of a fleet of aircraft (through an 

aircraft interchange agreement, through 

holding nominal shares in a fleet of 

aircraft, or any other similar 

arrangement), is not an aircraft owner 

with respect to any of the aircraft owned 

or leased as part of that business 

arrangement. 

A commenter observed that the other 

arrangements anti-abuse rule appears to 

be aimed at persons who create a 

structure providing access to a fleet of 

aircraft that fails to meet the definition 

of ‘‘fractional ownership aircraft 

program’’ in section 4043 in an effort to 

avoid the fuel surtax imposed by section 

4043, while retaining the right to claim 

the aircraft management services 

exemption to also avoid paying air 

transportation excise tax. The 

commenter further observed that the 

phrase ‘‘seeking to circumvent the 

surtax imposed by section 4043’’ in the 

other arrangements anti-abuse rule 

indicates that for the rule to apply, the 

primary intent in creating the 

arrangement must be to avoid the 

section 4043 surtax. Thus, the 

commenter noted, if there is a legitimate 

non-tax business purpose for creating 

the structure, the other arrangements 

anti-abuse rule should not apply, and 

the aircraft management services 

exemption should apply to amounts 

paid for aircraft management services 

relating to the aircraft in the structure. 

The commenter also observed that the 

phrase ‘‘right to use any of a fleet of 

aircraft (through an aircraft interchange 

agreement, through holding nominal 

shares in a fleet of aircraft, or any other 

similar arrangement)’’ in the proposed 

rule appears to apply to structures that 

are akin to fractional programs, but do 

not meet the definition of a fractional 

program in section 4043(c)(2). 

Based on the foregoing observations, 

the commenter disagreed with several 

aspects of the other arrangements antiabuse rule. First, the commenter 

disagreed with the proposed rule as 

unclear regarding how it would apply to 

structures that provide access to a fleet 

of aircraft that exist for reasons 

unrelated to the applicability of the fuel 

surtax imposed by section 4043. The 

commenter further disagreed with the 

proposed rule for failing to define the 

point at which a structure becomes 

enough like a fractional ownership 

aircraft program for the rule to apply. 

Finally, the commenter disagreed with 

the proposed rule because the 

commenter believes that it can be 

misinterpreted to include various 

legitimate structures in which aircraft 

management services are provided, 

including (a) instances where a 

substitute aircraft is provided from the 

aircraft management services provider’s 

charter fleet (which is addressed in 

proposed § 49.4261–10(c)); (b) leasing 

structures where a lessor is providing an 

insured and maintained aircraft but no 

pilots (which would not have 

previously been subject to the tax under 

the possession, command and control 

test); and (c) the routine use of 

interchange agreements between aircraft 

owners. 

The Treasury Department and the IRS 

share the concerns of the commenter 

that the proposed other arrangements 

anti-abuse rule may capture aircraft 

ownership structures and leasing 

arrangements that are legitimate and not 

created for purposes of circumventing 

the fuel surtax imposed by section 4043. 

The Treasury Department and the IRS 

are further concerned that the other 

arrangements anti-abuse rule would 

create too much taxpayer uncertainty 

and confusion, which would be 

compounded by the similarly worded 

rule in proposed § 49.4261–10(i) (see 

later discussion of this rule). As a result, 

the final regulations in § 49.4261– 

10(b)(3)(ii) do not include the other 

arrangements anti-abuse rule. Therefore, 

the final regulations in § 49.4261– 

10(b)(3)(ii) merely clarify and confirm 

that a participant in a fractional 

ownership aircraft program is not an 

aircraft owner for purposes of the 

exemption in section 4261(e)(5) if the 

amount paid for such person’s 

participation is exempt from the tax 

imposed by section 4261 by reason of 

section 4261(j). 

c. Definition of Disqualified Lease 

Proposed § 49.4261–10(b)(4) provided 

that the term ‘‘disqualified lease’’ has 

the meaning given to it by section 

4261(e)(5)(C)(ii). Proposed § 49.4261– 

10(b)(4), referred to herein as the 

‘‘disqualified lease anti-abuse rule,’’ 

further provided that a disqualified 

lease also includes any arrangement that 

seeks to circumvent the rule in section 

4261(e)(5)(C)(ii) by providing a lease 

term that is greater than 31 days but 

does not provide the lessee with 

exclusive and uninterrupted access and 

use of the leased aircraft, as identified 

by the aircraft’s airframe serial number 

and tail number. In addition, proposed 

§ 49.4261–10(b)(4) provided that the fact 

that a lease permits the lessee to use the 

aircraft for for-hire flights, as defined in 

§ 49.4261–10(b)(5), when the lessee is 

otherwise not using the aircraft does 

not, because of this fact alone, cause a 

lease with a term that is greater than 31 

days to be a disqualified lease. 

A commenter disagreed with the 

disqualified lease anti-abuse rule as a 

general matter, because, in the 

commenter’s opinion, it significantly 

expands the definition of ‘‘disqualified 

lease’’ beyond the definition provided 

in the statute, ensnaring common nonabusive situations that should not be 

subject to the rule, and frustrating the 

intended purpose of the statute. The 

commenter also disagreed with several 

specific aspects of the disqualified lease 

anti-abuse rule. First, the commenter 

disagreed with the disqualified lease 

anti-abuse rule for not including 

language limiting its application to only 

a lease of an aircraft from a person 

providing aircraft management services 

for such aircraft. 

Second, the commenter disagreed 

with the requirement in the disqualified 

lease anti-abuse rule that the lease 

should provide the lessee with 

exclusive and uninterrupted access and 

use of the leased aircraft as overly 

broad. The commenter stated that the 

problem with this aspect of the 

disqualified lease anti-abuse rule is that 

many aircraft are leased on a nonexclusive basis for valid business 

purposes, such as liability protection, 

state sales and use tax compliance, and 

FAA regulatory requirements. 

Third, the commenter disagreed with 

the disqualified lease anti-abuse rule as 

improperly subjecting entity-based coownership structures to air 

transportation excise tax. To illustrate 

this concern, the commenter offered as 

an example a situation in which two 

pilots form a limited liability company 

to purchase an aircraft. For FAA 

regulatory compliance reasons, the LLC 

enters into non-exclusive aircraft dry 

leases with each of the pilots who will 

operate the aircraft. Since neither lessee 

in such an arrangement would have 

exclusive and uninterrupted use of the 

aircraft, the proposed disqualified lease 

anti-abuse rule would cause those 

otherwise qualified leases to be 

disqualified leases. 

Fourth, the commenter observed that 

the ‘‘for hire’’ language in the 

disqualified lease anti-abuse rule allows 

a lessee to use the leased aircraft to 

provide ‘‘for hire’’ flights. The 

commenter disagreed with this aspect of 

the rule, stating that an aircraft must 

typically be leased to an on-demand air 

taxi operator to conduct such for-hire 

flights. Therefore, the commenter 

continued, an aircraft owner may lease 

its aircraft without a crew on a nonexclusive basis directly to an onVerDate Sep<11>2014 16:33 Jan 17, 2021 Jkt 253001 PO 00000 Frm 00119 Fmt 4700 Sfmt 4700 E:\FR\FM\19JAR1.SGM 19JAR1

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demand air taxi operator in addition to 

leasing its aircraft without a crew 

pursuant to a separate non-exclusive 

lease to a related party for reasons 

unrelated to air transportation excise 

tax; in such a case, the aircraft will be 

leased to each lessee on a non-exclusive 

basis. The commenter concluded that, 

based on the language of the 

disqualified lease anti-abuse rule, these 

facts could cause the non-exclusive 

leases to be disqualified leases. 

Finally, the commenter disagreed 

with the disqualified lease anti-abuse 

rule because the commenter believes 

that it is possible that an aircraft owner 

that provides limited services relating to 

the aircraft could be deemed an aircraft 

management services provider based on 

the broad definitions of the terms 

‘‘aircraft management services’’ and 

‘‘aircraft management services 

provider.’’ The commenter explained 

that most business aircraft owners 

provide at least some services, such as 

insurance, hangarage, or maintenance, 

when they lease their aircraft for valid 

business reasons such as liability 

protection planning, maintenance 

consistency, insurance requirements, 

and state sales and use tax compliance. 

To illustrate the commenter’s 

concern, the commenter offered the 

example of an entity that purchases an 

aircraft and enters into two nonexclusive leases to its parent company 

and to a sister company with a term 

greater than 31 days. The lessor may 

obtain the hangar and the insurance for 

the aircraft since there is typically one 

hangar and one insurance policy 

covering the aircraft even if there is 

more than one non-exclusive aircraft 

lessee. Applying the proposed 

disqualified lease anti-abuse rule to this 

situation, the commenter concluded that 

the lessor could be viewed as an aircraft 

management services provider and the 

arrangement would be subject to the 

disqualified lease anti-abuse rule. The 

commenter further concluded that this 

scenario would inappropriately broaden 

the scope of the disqualified lease antiabuse rule since the statutory language 

was not meant to apply the disqualified 

lease provision to lessors that provide 

only partial or limited services. 

The commenter suggested that final 

§ 49.4261–10(b)(4) remove the 

disqualified lease anti-abuse rule in its 

entirety so that the regulatory definition 

of ‘‘disqualified lease’’ merely restates 

the statutory definition of the term. 

The Treasury Department and the IRS 

share the concerns of the commenter, 

particularly that the disqualified lease 

anti-abuse rule may capture common, 

legitimate leasing arrangements. 

Therefore, the final regulations remove 

the disqualified lease anti-abuse 

language from the definition of 

‘‘disqualified lease’’ in § 49.4261– 

10(b)(4). As a result, the final version of 

§ 49.4261–10(b)(4) simply defines 

‘‘disqualified lease’’ by reference to its 

statutory definition in section 

4261(e)(5)(C)(ii). 

d. Definition of Private Aviation 

Proposed § 49.4261–10(a)(2) limited 

the aircraft management services 

exemption to aircraft management 

services related to aircraft used in 

private aviation. Proposed § 49.4261– 

10(b)(6) defined the term ‘‘private 

aviation’’ as the use of an aircraft for 

civilian flights except scheduled 

passenger service. A commenter 

observed that the apparent intent of 

proposed § 49.4261–10(a)(2), when read 

in combination with the definition of 

‘‘private aviation’’ in proposed 

§ 49.4261–10(b)(6), is to prevent the 

aircraft management services exemption 

from applying to amounts paid for 

aircraft management services related to 

scheduled commercial airline aircraft 

and flights. The commenter also 

observed that proposed § 49.4261–10(d) 

makes clear that the aircraft 

management services exemption is 

available for aircraft and flights operated 

under the charter services rules of part 

135 of the FAA regulations (14 CFR part 

135). The commenter suggested that the 

final regulations clarify that ‘‘scheduled 

passenger service’’ refers to flights 

conducted by airlines that sell tickets on 

an individual seat basis to the general 

public. The commenter also suggested 

that the final regulations further clarify 

that the term ‘‘private aviation’’ 

includes charter flights operated under 

part 135 of the FAA regulations. 

The Treasury Department and the IRS 

agree with the commenter that the final 

regulations should clarify the types of 

flight operations permitted under the 

private aviation rule in § 49.4261– 

10(a)(2). Therefore, the final regulations 

incorporate the commenter’s suggested 

changes to the definition of private 

aviation provided in § 49.4261–10(b)(8). 

Specifically, the final regulations clarify 

that ‘‘scheduled passenger service’’ 

refers to flights for which tickets are 

sold on an individual seat basis to the 

general public. In addition, the 

definition of private aviation is 

modified to explicitly include 

operations conducted under part 135 of 

the FAA regulations. 

e. Section 4261(e)(5)(D) 

Section 4261(e)(5)(D) provides that in 

the case of amounts paid to any person 

which (but for section 4261(e)(5)) are 

subject to air transportation excise tax, 

a portion of which consists of amounts 

described in section 4261(e)(5)(A), 

section 4261(e)(5) ‘‘shall apply on a pro 

rata basis only to the portion which 

consists of amounts described in’’ 

section 4261(e)(5)(A). The Conference 

Report provides that in the event that a 

monthly payment made to an aircraft 

management company is allocated in 

part to exempt services and flights on 

the aircraft owner’s aircraft, and in part 

to flights on aircraft other than that of 

the aircraft owner, air transportation 

excise tax must be collected on that 

portion of the payment attributable to 

flights on aircraft not owned by the 

aircraft owner. 

Proposed § 49.4261–10(c)(1), which 

generally tracked the pro rata allocation 

language in the Conference Report, 

provided that if an aircraft management 

services provider provides flight 

services to an aircraft owner on a 

substitute aircraft during a calendar 

quarter, air transportation excise tax 

applies to that portion of the amounts 

paid by the aircraft owner to the aircraft 

management services provider, 

determined on a pro rata basis, that are 

related to the flight services provided on 

the substitute aircraft. Stated differently, 

the proposed regulations provided that 

when an aircraft owner is provided 

flights on a substitute aircraft by an 

aircraft management services provider 

(for example, when the aircraft owner’s 

aircraft is unavailable due to 

maintenance), a portion of the amounts 

paid by the aircraft owner to the aircraft 

management services provider is subject 

to air transportation excise tax. 

Proposed § 49.4261–10(c)(2) proposed 

a method, based on the ratio of flight 

hours provided on a substitute aircraft 

compared to the total flight hours 

provided to the aircraft owner on the 

aircraft owner’s aircraft and on 

substitute aircraft during a calendar 

quarter, for calculating the taxable 

portion of the amount paid to the 

aircraft management services provider. 

A commenter objected to proposed 

§ 49.4261–10(c) as unnecessary; the 

commenter reasoned that—assuming 

flights provided on a substitute aircraft 

are treated as charter flights provided by 

the aircraft management services 

provider to the aircraft owner and 

subject to air transportation excise tax— 

there is no need for a special calculation 

to determine the amount paid for such 

flights. Similarly, again assuming flights 

provided on a substitute aircraft are 

treated as charter flights provided by the 

aircraft management services provider 

to the aircraft owner and subject to air 

transportation excise tax, multiple 

commenters objected to proposed 

§ 49.4261–10(c) because it could result 


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in air transportation excise tax being 

applied to the same air transportation 

twice—once on the amount paid for the 

charter on the substitute aircraft and 

then again on a portion of the amount 

paid for aircraft management services to 

the aircraft management services 

provider providing the substitute 

aircraft. 

One commenter offered several 

comments regarding the allocation 

methodology in proposed § 49.4261– 

10(c)(2). First, the commenter disagreed 

with the proposed allocation 

methodology because it may result in air 

transportation excise tax being imposed 

on amounts paid for non-transportation 

items. Second, the commenter disagreed 

with the proposed allocation 

methodology because it may result in 

the application of air transportation 

excise tax to an amount 

disproportionate to the fair market value 

of the transportation services actually 

provided on the substitute aircraft. 

Third, the commenter disagreed with 

the proposed allocation methodology 

because it promotes a loss of revenue to 

aircraft management services providers. 

The commenter explained that to avoid 

having to pay air transportation excise 

tax on an allocated portion of the 

amount paid for aircraft management 

services, the aircraft owner need only 

hire the replacement aircraft from an 

operator different than the one that 

provides aircraft management services 

to the aircraft owner. Thus, the 

commenter asserted that the proposed 

rule incentivizes aircraft owner behavior 

that will result in lost revenue to the 

aircraft management services provider. 

Fourth, the commenter disagreed with 

the proposed allocation methodology as 

increasing taxpayer uncertainty because 

the amount of air transportation excise 

tax that results from the method will not 

be known at the time an aircraft 

management services provider would 

invoice an aircraft owner for services 

provided on a substitute aircraft. 

A third commenter disagreed with the 

allocation methodology in proposed 

§ 49.4261–10(c) because the calculation, 

in the commenter’s view, will ordinarily 

produce nonsensical results since the 

cost profile of a substitute aircraft will 

likely be different from the cost profile 

for the aircraft owner’s aircraft. The 

commenter asserted that averaging the 

costs of two aircraft with different cost 

profiles will produce an arbitrary result 

with no rational relationship to a 

reasonable, fair market charter rate for 

flights on the substitute aircraft. The 

commenter further asserted that the 

allocation methodology calculation will 

be further skewed if the aircraft ownertaxpayer owns multiple aircraft with 

varying flight hours from one quarter to 

the next, buys or sells aircraft during the 

quarter, or pays multiple aircraft 

management services providers rather 

than a single aircraft management 

services provider. 

All three commenters suggested that 

the final regulations either completely 

remove § 49.4261–10(c), as drafted in 

the proposed regulations, or that the 

final regulations adopt a different 

approach than the proposed allocation 

methodology. All three commenters also 

suggested that in situations where a 

substitute aircraft is provided to an 

aircraft owner, air transportation excise 

tax should be calculated based on the 

amount paid by the aircraft owner for 

the substitute aircraft (that is, in a 

manner similar to how air 

transportation excise tax is calculated 

on amounts paid for charter flights). A 

commenter also suggested that if an 

aircraft owner pays less than fair market 

value for the use of the substitute 

aircraft, then air transportation excise 

tax should be calculated on the fair 

market value rather than the actual 

amount paid for the substitute aircraft. 

In the alternative, if the proposed 

allocation methodology is incorporated 

into the final regulations, a commenter 

suggested that the final regulations 

provide that when an aircraft owner 

pays for a substitute aircraft, then the 

aircraft owner will receive a credit for 

any air transportation excise tax that it 

paid in relation to hiring a substitute 

aircraft against the amount of tax 

calculated under the allocation 

methodology. Another commenter 

suggested that if the proposed allocation 

methodology is incorporated into the 

final regulations, then the final 

regulations provide that an aircraft 

owner may elect to pay air 

transportation excise tax on the fair 

market value of the flight provided on 

the substitute aircraft rather than pay 

the air transportation excise tax 

calculated using the proposed 

methodology. 

The comments prompted the Treasury 

Department and the IRS to reevaluate 

the approach taken in the proposed 

regulations with regard to section 

4261(e)(5)(D). Based on this 

reevaluation, the Treasury Department 

and the IRS reached two conclusions. 

First, section 4261(e)(5)(D) has 

broader applicability than just the 

provision of substitute aircraft as 

evidenced by the plain language of that 

provision. 

Second, the allocation methodology 

in the proposed regulation is 

problematic. Specifically, the Treasury 

Department and the IRS share the 

concerns expressed by the commenters, 

particularly with regard to the potential 

for double taxation and uncertainty 

under the proposed rule. 

For these reasons, the final 

regulations adopt the general approach 

suggested by the commenters. 

Specifically, final § 49.4261–10(c)(1) 

restates section 4261(e)(5)(D) as a 

generally applicable rule. Final 

§ 49.4261–10(c)(1) further provides that 

the tax base for the portion that is 

subject to the tax imposed by section 

4261(a) is the amount paid for such 

flights or services, provided the amount 

paid is separable and shown in exact 

amounts in the records pertaining to the 

charge. This rule is consistent with 

commenter suggestions and also reflects 

the general approach in the air 

transportation excise tax area that the 

section 4261(a) tax is imposed on the 

actual amount paid for taxable 

transportation. The separability element 

of the rule is consistent with the rule in 

§ 49.4261–2(c) regarding situations in 

which a payment covers charges for 

transportation and nontransportation 

services. If the portion of the amount 

paid that is subject to the tax imposed 

by section 4261(a) is not separable and 

is not shown in exact amounts in the 

records pertaining to the charge, the tax 

base is the fair market value of the 

flights or services; however, the tax base 

does 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)). For clarity, the final 

regulations also include a definition of 

‘‘fair market value’’ that applies to 

allocations. The definition of ‘‘fair 

market value’’ is consistent with 

commenter suggestions. 

In addition, final § 49.4261–10(c)(2) 

treats the provision of a flight on a 

substitute aircraft to the aircraft owner 

by an aircraft management services 

provider as an aircraft charter, with the 

aircraft owner as the charterer. The final 

regulations further provide that the 

allocation rule in final § 49.4261– 

10(c)(1) applies in determining the tax 

base. 

The final regulations also provide 

guidance for situations in which a 

substitute aircraft is used to provide a 

for-hire flight. In that instance, the final 

regulations instruct taxpayers and 

collectors to follow the aircraft charter 

rules in § 49.4261–7(h)(2). 

The final regulations update the first 

example and add a second example in 

§ 49.4261–10(h) to illustrate these rules. 

f. Aircraft Available for Hire 

Proposed § 49.4261–10(e)(1) provided 

that whether an aircraft owner permits 


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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 the aircraft management services 

exemption. Proposed § 49.4261–10(e)(1) 

further provided that an amount paid 

for for-hire flights on the aircraft 

owner’s aircraft does not qualify for the 

aircraft management services 

exemption. Therefore, under proposed 

§ 49.4261–10(e)(1), an amount paid for a 

for-hire flight on an aircraft owner’s 

aircraft is subject to air transportation 

excise tax unless the amount paid is 

otherwise exempt from air 

transportation excise tax other than by 

reason of the aircraft management 

services exemption. 

A commenter expressed concern that 

the wording of proposed § 49.4261– 

10(e)(1) may cause confusion and result 

in the misapplication of air 

transportation excise tax to amounts 

paid that should qualify for the aircraft 

management services exemption. 

Specifically, the commenter’s concern 

relates to the second and third sentences 

of proposed § 49.4261–10(e)(1), which 

explain that amounts paid for for-hire 

flights are subject to air transportation 

excise tax. The commenter observed 

that under section 4261(e)(5), amounts 

paid by an aircraft owner for flights on 

the aircraft owner’s aircraft are exempt 

from air transportation excise tax. The 

commenter further observed that under 

proposed § 49.4261–10(d), operating an 

aircraft owner’s aircraft under part 135 

of the FAA regulations does not affect 

the application of the aircraft 

management services exemption. The 

commenter’s concern is that aircraft 

operations conducted under part 135 of 

the FAA regulations could arguably be 

considered for-hire flights; however, 

proposed § 49.4261–10(e)(1) does not 

provide a carve-out for part 135 flights 

paid for by the aircraft owner. 

Therefore, in order to clarify that 

amounts paid by an aircraft owner for 

flights operated under part 135 are not 

subject to air transportation excise tax, 

the commenter suggested that the final 

regulations incorporate a carve-out by 

modifying the second sentence of 

proposed § 49.4261–10(e)(1) to read: 

‘‘However, an amount paid for for-hire 

flights on the aircraft owner’s aircraft, 

except payments made by such aircraft 

owner, does not qualify for the section 

4261(e)(5) exemption.’’ (emphasis added 

to denote new wording). 

The Treasury Department and the IRS 

agree with the commenter. As a result, 

final § 49.4261–10(e) incorporates the 

commenter’s suggested change. 

g. Coordination With Fuel Tax 

Provisions 

Proposed § 49.4261–10(g) provided 

that taxable fuel (as defined in section 

4083(a)) or any liquid taxable under 

section 4041(c) that is used as fuel on 

a flight for which amounts paid are 

exempt from air transportation excise 

tax by reason of the aircraft management 

services exemption is not fuel used in 

commercial aviation, as that term is 

defined in section 4083(b). Thus, under 

the proposed rule, if the aircraft 

management services exemption applies 

to amounts paid in relation to a flight, 

then the higher noncommercial fuel tax 

rate (as compared to the commercial 

fuel tax rate) automatically applies to 

fuel used during such flight. 

A commenter stated that proposed 

§ 49.4261–10(g) is inconsistent with the 

air transportation excise tax-fuel tax 

statutory scheme and contrary to 

Congressional intent with regard to that 

scheme. The commenter asserted that if 

Congress had intended that all flights 

qualifying for the aircraft management 

services exemption be treated as noncommercial flights for fuel tax purposes, 

Congress could have adopted a 

corresponding code section to that effect 

as it did with other exemptions to air 

transportation excise tax. Specifically, 

the commenter pointed to the 

exemptions to air transportation excise 

tax provided in sections 4261(h) 

(skydiving), 4261(i) (seaplanes), 4281 

(small aircraft on nonestablished lines), 

and 4282 (affiliated group members), 

each of which section 4083(b) explicitly 

excludes from the definition of 

‘‘commercial aviation’’ for purposes of 

determining applicable fuel tax rates. By 

not providing a similar, explicit 

definitional exclusion in section 4083(b) 

(or other Code section) for the aircraft 

management services exemption, the 

commenter asserted, Congress left the 

determination of which fuel tax rate— 

commercial or non-commercial— 

applies to a particular flight to the 

application of the general definition of 

‘‘commercial aviation’’ in section 

4083(b). Therefore, the commenter 

suggested that the final regulations 

provide that if the aircraft management 

services exemption applies to amounts 

paid for a flight, the determination of 

whether fuel used during the flight is 

subject to commercial or noncommercial fuel tax rates is made 

simply through an application of the 

definition of commercial aviation 

provided in section 4083(b). 

The Treasury Department and the IRS 

agree with the commenter that proposed 

§ 49.4261–10(g) is inconsistent with the 

air transportation excise tax-fuel excise 

tax statutory scheme. As a result, the 

final regulations do not adopt the rule 

in proposed § 49.4261–10(g). The rule in 

proposed § 49.4261–10(e)(2) relating to 

fuel used in for-hire flights is similarly 

inconsistent with the air transportation 

excise tax-fuel excise tax statutory 

scheme. Therefore, the final regulations 

also do not adopt the rule proposed in 

§ 49.4261–10(e)(2). Because final 

§ 49.4261–10 does not provide fuel 

excise tax guidance related to the 

exemption in section 4261(e)(5), persons 

affected by the aircraft management 

services exemption should continue to 

follow current statutory, regulatory, and 

administrative guidance related to the 

rates of tax for aviation fuel. 

h. Coordination With Fractional 

Ownership Aircraft Exemption; AntiAbuse Rule 

Proposed § 49.4261–10(i) provided, in 

relevant part, that the aircraft 

management services exemption does 

not apply to any amount paid for 

aircraft management services by a 

participant in any transaction or 

arrangement, or through other means, 

that seeks to circumvent the surtax 

imposed by section 4043. A commenter 

expressed concern that confusion could 

result from the phrasing of the first 

sentence of proposed § 49.4261–10(i) 

because it is essentially identical to the 

phrasing of the second sentence of 

proposed § 49.4261–10(b)(3)(ii) 

(excluding fractional aircraft ownership 

programs and similar arrangements from 

the definition of ‘‘aircraft owner’’). The 

commenter suggested that the first 

sentence in the final version of 

§ 49.4261–10(i) simply cross-reference 

§ 49.4261–10(b)(3)(ii), rather than 

repeating the similar language. 

Specifically, the commenter suggested 

the following language for the first 

sentence of final § 49.4261–10(i): ‘‘The 

aircraft management services exemption 

does not apply to any amount paid for 

aircraft management services by a 

participant in the type of business 

arrangement described in [§ 49.4261– 

10(b)(3)(ii)] that does not qualify the 

participant as an aircraft owner.’’ 

The Treasury Department and the IRS 

believe that the rule in proposed 

§ 49.4261–10(i) is problematic for the 

same reasons as the other arrangements 

anti-abuse rule in proposed § 49.4261– 

10(b)(3)(ii) (discussed earlier); 

specifically, it may capture aircraft 

ownership structures that are legitimate 

and not created for purposes of 

circumventing the fuel surtax imposed 

by section 4043. The Treasury 

Department and the IRS further believe 


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that, like the other arrangements antiabuse rule in proposed § 49.4261– 

10(b)(3)(ii), the rule in proposed 

§ 49.4261–10(i) would have created 

taxpayer uncertainty and confusion. 

Because the final regulations in 

§ 49.4261–10(b)(3)(ii) clarify that a 

participant in a fractional ownership 

aircraft program is not an aircraft owner 

for purposes of the exemption in section 

4261(e)(5), an additional coordination 

rule is redundant. As a result, the final 

regulations do not adopt proposed 

§ 49.4261–10(i). 

i. Adequate Records 

Proposed § 49.4261–10(a)(3) stated 

that 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 for the aircraft owner’s aircraft 

or for flights on the aircraft owner’s 

aircraft. 

A commenter requested that the final 

regulations provide guidance on the 

types of records required to satisfy this 

requirement. The Treasury Department 

and the IRS agree. Accordingly, the final 

regulations add language to § 49.4261– 

10(a)(3) stating that 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, 

the aircraft management services 

provider’s fee schedule, and documents 

to support any allocations required 

under the pro rata allocation rule. 

j. Examples 

Proposed § 49.4261–10(j) included 

two examples illustrating certain 

aspects of the rules in proposed 

§ 49.4261–10. Proposed § 49.4261– 

10(j)(1) (Example 1) illustrated the 

substitute aircraft allocation 

methodology in proposed § 49.4261– 

10(c)(1) and (2). Proposed § 49.4261– 

10(j)(1)(i) (presenting the facts of 

Example 1) stated, in relevant part, that: 

A commenter stated that it interpreted 

proposed § 49.4261–10(j)(1)(i) 

(presenting the facts of Example 1) as 

saying that if a company hires an 

aircraft management company to 

provide only pilot services to the 

aircraft owner, then—but for the aircraft 

management services exemption—air 

transportation excise tax would apply to 

the amounts paid by the aircraft owner 

to the aircraft management services 

provider. Based on its interpretation, the 

commenter expressed its opinion that 

the example presents an extreme 

position with regard to the application 

of air transportation excise tax to an 

aircraft owner-aircraft management 

services provider relationship. The 

commenter further stated that the 

second sentence in proposed § 49.4261– 

10(j)(1)(i) may cause confusion 

regarding the application of the 

possession, command, and control test 

in cases that are not governed by section 

4261(e)(5). In addition, the commenter 

stated that the second sentence in 

proposed § 49.4261–10(j)(1)(i) is 

irrelevant to the rest of the example, 

thereby compounding the other 

problems that the commenter 

mentioned. The commenter suggested 

that the final regulations remove the 

second sentence from § 49.4261– 

10(j)(1)(i). 

As noted earlier, the final regulations 

include a revised pro rata allocation 

rule. The final regulations also revise 

the first example (including deletion of 

the second sentence) and add a second 

example to illustrate the revised pro rata 

allocation rule. In addition, the final 

regulations revise the third example 

(proposed § 49.4261–10(j)(2)) to remove 

the fuel references in light of the 

decision not to adopt proposed 

§ 49.4261–10(e)(2) and (g) in the final 

regulations. 

III. Generally Applicable Air 

Transportation Excise Tax Rules and 

Aircraft Charter Rules 

a. Payment and Collection Obligations 

Proposed § 49.4261–1(b)(1) restated, 

in general terms, statutory provisions 

and existing regulations related to the 

duties and obligations of a person that 

makes a payment subject to the taxes 

imposed by section 4261 (that is, the 

taxpayer) and a person that receives 

such payments (that is, the collector). 

The duties and obligations include 

those imposed on the collector to collect 

the applicable tax from the taxpayer, to 

report the tax on Form 720, Quarterly 

Federal Excise Tax Return, and to remit 

the tax to the IRS. The duties and 

obligations enumerated in the proposed 

regulations also include the requirement 

that the collector make semimonthly 

deposits of the taxes imposed by section 

4261. 

Proposed § 49.4261–1(b)(2) restated 

the rule in section 4263(c), which 

provides that 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. 

Regarding proposed § 49.4261–1(b)(1), 

a commenter expressed concern that 

current published guidance (primarily 

in the form of revenue rulings) does not 

adequately address the duties and 

obligations of charter brokers with 

regard to collecting and reporting air 

transportation excise tax. The 

commenter described a charter broker as 

an intermediary that charters aircraft 

from a certificated air carrier (who 

actually provides the flight services), 

and that may act as an agent of the air 

carrier, an agent of the passengers, or as 

a principal in the chartering transaction. 

The commenter stated that the lack of 

guidance related to charter brokers has 

created considerable confusion in the 

charter broker industry. Further, the 

commenter stated that the need for clear 

and precise guidance is compounded by 

the aircraft charter rules provided in 

proposed § 49.4261–7(h) (discussed 

later) and section 4263(c), which 

imposes liability on the air carrier 

providing the initial segment of 

transportation that begins or ends in the 

U.S. in cases where any tax imposed by 

section 4261 is not paid at the time the 

payment for transportation is made. 

Therefore, the commenter requested that 

the final regulations provide guidance 

regarding the circumstances in which a 

charter broker (rather than an air carrier) 

is obligated to collect air transportation 

excise tax and file Forms 720. The 

commenter suggested that such 

guidance should be consistent with the 

approaches taken in Rev. Rul. 68–256, 

1968–1 C.B. 489; Rev. Rul. 75–296, 

1975–2 C.B. 440; and Rev. Rul. 2006–52, 

2006–2 C.B. 761. 

Regarding proposed § 49.4261–1(b)(2), 

a commenter stated that the obligation 

placed on the air carrier to pay the tax 

imposed by section 4261 if the party 

responsible for collecting it fails to do 

so creates confusion and unfair liability 

exposure for the air carrier. Further, the 

commenter stated, as an example, that 

an IRS examiner could assert tax 

liability on the air carrier for 

uncollected tax when the air carrier has 

no means to determine whether another 

responsible party, such as a charter 

broker, had collected and paid over the 

tax. To alleviate these concerns, the 

commenter suggested that the final 

regulations provide that if an air carrier 

documents that it informed the charter 

broker of its obligation to collect the 

taxes imposed by section 4261 and file 

Forms 720 (see the discussion of 

proposed § 49.4261–7(h) later), then the 

air carrier will not be liable for 

uncollected tax under section 4263(c). 


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The commenter also suggested that the 

final regulations provide that if the IRS 

asserts liability on an air carrier under 

section 4263(c) (irrespective of whether 

the air carrier can show that it informed 

the charter broker of its obligations to 

collect and report) during an 

examination, then the air carrier should 

be entitled to obtain information from 

the IRS on whether the tax was paid by 

the charter broker or any other party. 

The Treasury Department and the IRS 

understand and share the commenters’ 

concerns related to uncertainty and the 

possibility of surprise that may result 

from another party’s IRS examination 

because of the rules in section 4263(c) 

and proposed § 49.4261–1(b)(2). 

Because the interactions between 

section 4263(c) and other air 

transportation excise tax rules are 

complex and have broad implications 

for other members of the air 

transportation industry, the Treasury 

Department and the IRS believe that 

these issues require additional study 

and input from a broader cross-section 

of the air transportation industry. 

Further, the Treasury Department and 

the IRS believe that section 4263(c) 

issues should be addressed in a separate 

published guidance project that could 

also potentially consider the interplay 

between section 4263(c) and the existing 

regulatory rules in § 49.4261–7(h) and 

§ 49.4291–1. 

However, because, as mentioned 

earlier, proposed § 49.4261–1(b)(1) 

merely restated currently applicable 

statutory and regulatory rules, the final 

regulations adopt proposed § 49.4261– 

1(b)(1) without change. In addition, the 

final regulations do not adopt the 

second sentence of proposed § 49.4261– 

1(b)(2) so that the final regulations 

simply track the language of section 

4263(c), as currently written, without 

further comment. The Treasury 

Department and the IRS believe it is 

necessary to finalize these rules because 

the existing regulations related to 

section 4263(c) reflect prior law, which 

has created widespread confusion 

among taxpayers and collectors in the 

air transportation area. 

b. Aircraft Charters 

Proposed § 49.4261–7(h), which 

generally restated existing rules in 

§ 49.4261–7(h), provided rules related to 

the application of the taxes imposed by 

section 4261 to situations in which a 

person provides air transportation 

services on an aircraft that was 

chartered from—and operated by— 

another party, commonly referred to as 

a ‘‘wet lease.’’ Proposed § 49.4261– 

7(h)(2) provided that the charterer of an 

aircraft who sells transportation to other 

persons must collect and account for the 

tax with respect to all amounts paid to 

the charterer by such other persons. The 

proposed rule further provided that, in 

such a case, no tax will be due on the 

amount paid by the charterer for the 

charter of the aircraft but that it is the 

duty of the owner of the aircraft to 

advise the charterer of the charterer’s 

obligation for collecting, accounting for, 

and paying over the tax to the IRS. This 

requirement is intended to ensure the 

parties communicate with each other 

regarding air transportation excise tax 

and prevent misunderstandings about 

which party is responsible for collecting 

tax under the arrangement. 

Two commenters requested 

clarification regarding the duty of the 

‘‘owner of the aircraft to advise the 

charterer of the charterer’s obligations 

for collecting, accounting for, and 

paying over the tax’’ to the IRS imposed 

under the proposed rule. A commenter 

stated that in the air charter industry, 

the air carrier does not typically own 

the aircraft used to provide charter 

flights. Because the proposed rule 

imposes on the aircraft owner the duty 

to advise the charterer of its obligations, 

the commenter stated that confusion 

about which party must advise the 

charterer may result from the phrasing 

of the proposed rule. The commenter 

suggested the proposed rule use the 

phrase ‘‘air carrier’’ rather than ‘‘owner 

of the aircraft.’’ 

A commenter also requested 

clarification about how and when the 

duty to advise the charterer of its 

obligations with regard to air 

transportation excise tax must be 

satisfied. Specifically, the commenter 

asked whether the duty to advise 

applies separately to each specific 

charter flight, or whether the duty may 

be satisfied as part of a long-term 

underlying agreement between the 

aircraft owner and the charterer such as 

a lease agreement for the aircraft 

owner’s aircraft entered into by the 

aircraft owner and the charterer. The 

commenter also requested clarification 

regarding whether the duty to advise the 

charterer of its obligations with regard 

to air transportation excise tax creates 

an obligation on the part of the aircraft 

owner to collect the tax if the charterer 

fails to do so. 

The Treasury Department and the IRS 

understand and share the commenters’ 

concern that, because the owner of a 

chartered aircraft may not be the party 

that operates the aircraft, the phrasing of 

the proposed rule may cause confusion. 

In addition, the Treasury Department 

and the IRS understand the need for 

clarification regarding the duty of the 

aircraft owner to advise the charterer of 

its collection obligations. However, 

because these rules are complex and 

have broad applicability to the air 

transportation industry, additional 

study and stakeholder input is required. 

Accordingly, a separate published 

guidance project is necessary to address: 

(a) the possible shifting of the duty to 

advise the charterer about its obligations 

for collecting, accounting for, and 

paying over the tax to the IRS to the air 

carrier operating the chartered aircraft 

instead of the owner of the chartered 

aircraft; (b) whether the duty to advise 

applies separately to each specific 

charter flight, or whether the duty may 

be satisfied as part of a long-term 

agreement between the aircraft owner 

and the charterer; and (c) whether the 

duty to advise the charterer of its 

obligations with regard to air 

transportation excise tax creates an 

obligation on the part of the aircraft 

owner to collect the tax if the charterer 

fails to do so. 

Because proposed § 49.4261–7(h) 

merely restated currently applicable 

rules, the final regulations adopt 

proposed § 49.4261–7(h) without 

change. Until additional guidance is 

issued, § 49.4261–7(h), as finalized, and 

other existing published guidance 

apply. 

Effect on Other Documents 

Revenue Ruling 67–414 (1967–2 C.B. 

382), Revenue Ruling 72–309 (1972–1 

C.B. 348), and Revenue Ruling 2002–34 

(2002–1 C.B. 1150) are obsoleted on 

January 19, 2021. 

Applicability Dates 

For dates of applicability, see §§ 40.0– 

1(e), 49.4261–1(g), 49.4261–2(d), 

49.4261–3(e), 49.4261–7(k), 49.4261– 

9(c), 49.4261–10(i), 49.4262–1(f), 

49.4262–2(e), 49.4262–3(e), 49.4281– 

1(e), 49.4263–1(b), 49.4263–3(b), 

49.4271–1(g), and 49.4721–2. 

Special Analyses 

This regulation is not subject to 

review under section 6(b) of Executive 

Order 12866 pursuant to the 

Memorandum of Agreement (April 11, 

2018) between the Department of the 

Treasury and the Office of Management 

and Budget regarding review of tax 

regulations. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that this final rule will not 

have a significant economic impact on 

a substantial number of small entities. 

Although the rule may affect a 

substantial number of small entities, the 

economic impact of the regulations is 

not likely to be significant. Data are not 

readily available about the number of 


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taxpayers affected, but the number is 

likely to be substantial for both large 

and small entities because the rule may 

affect entities that serve as holding 

companies for aircraft that do not have 

many revenues or employees. The 

economic impact of these regulations is 

not likely to be significant, however, 

because these final regulations primarily 

clarify the application of the aircraft 

management services exception added 

to the Code by the TCJA. These final 

regulations will assist taxpayers in 

understanding the rules to qualify for 

the exemption under section 4261(e)(5) 

and make it easier for taxpayers to 

comply and IRS examiners to 

administer the exemption. Accordingly, 

the Secretary of the Treasury’s delegate 

certifies that the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Notwithstanding this certification, the 

Treasury Department and the IRS 

welcome comments on the impact of 

these regulations on small entities. 

Pursuant to section 7805(f) of the 

Code, the notice of proposed rulemaking 

preceding this regulation was submitted 

to the Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. No comments 

were received from the Chief Counsel 

for the Office of Advocacy of the Small 

Business Administration. 

Statement of Availability of IRS 

Documents 

IRS Revenue Procedures, Revenue 

Rulings, Notices and other guidance 

cited in this document are published in 

the Internal Revenue Bulletin and are 

available from the Superintendent of 

Documents, U.S. Government 

Publishing Office, Washington, DC 

20402, or by visiting the IRS website at 

http://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is Michael H. Beker, Office 

of the Associate Chief Counsel 

(Passthroughs and Special Industries). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects 

26 CFR Part 40 

Excise taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 49 

Excise taxes, Reporting and 

recordkeeping requirements, Telephone, 

Transportation. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR parts 40 and 49 

are amended as follows: 

PART 40—EXCISE TAX PROCEDURAL 

REGULATIONS 

■ Paragraph 1. The authority citation 

for part 40 is amended by removing the 

entry for § 40.6071(a)–3 to read in part 

as follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 40.0–1 is amended by 

redesignating paragraph (d) as 

paragraph (e), adding a new paragraph 

(d), and revising newly redesignated 

paragraph (e) to read as follows: 

§ 40.0–1 Introduction. 

* * * * * 

(d) Person. For purposes of this part, 

each business unit that has, or is 

required to have, a separate employer 

identification number is treated as a 

separate person. Thus, business units 

(for example, a parent corporation and 

a subsidiary corporation, a partner and 

the partner’s partnership, or the various 

members of a consolidated group), each 

of which has, or is required to have, a 

different employer identification 

number, are separate persons. 

(e) Applicability date—(1) Paragraphs 

(a), (b), and (c) of this section. 

Paragraphs (a), (b), and (c) of this 

section apply to returns for periods 

beginning after March 31, 2013. For 

rules that apply before that date, see 26 

CFR part 40, revised as of April 1, 2012. 

(2) Paragraph (d) of this section. 

Paragraph (d) of this section applies to 

returns for periods beginning on or after 

January 19, 2021. For rules that apply 

before that date, see 26 CFR part 40, 

revised as of April 1, 2020. 

§ 40.6071(a)–3 [Removed] 

■ Par. 3. Section 40.6071(a)–3 is 

removed. 

PART 49—FACILITIES AND SERVICES 

EXCISE TAX REGULATIONS 

■ Par. 4. The authority citation for part 

49 continues to read in part as follows: 

Authority: 26 U.S.C. 7805. * * * 

■ Par. 5. Section 49.4261–1 is revised to 

read as follows: 

§ 49.4261–1 Imposition of tax; in general. 

(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, 


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5002 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 

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; crossreferences—(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. 

■ Par. 6. Section 49.4261–2 is amended 

by: 

■ 1. Revising paragraphs (a) and (b). 

■ 2. Adding paragraph (d). 

The revisions and addition read as 

follows: 

§ 49.4261–2 Application of tax. 

(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 perpassenger 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. 

* * * * * 

(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. 

■ Par. 7. Section 49.4261–3 is amended 

by: 

■ 1. Removing ‘‘§ 49.4262(c)–1’’ 

wherever it appears and adding 

‘‘§ 49.4262–3’’ in its place. 

■ 2. In the first sentence of paragraph 

(a), removing ‘‘The tax imposed by 

section 4261(a)’’ and adding ‘‘The taxes 

imposed by section 4261(a) and (b) of 

the Internal Revenue Code (Code)’’ in its 

place. 

■ 3. In the second sentence of paragraph 

(a), adding ‘‘under section 4261(a) and 

(b)’’ at the end of the sentence. 

■ 4. Revising paragraphs (b) and (c). 

■ 5. In paragraph (d), removing ‘‘section 

4262(b) and § 49.4262(b)–1’’ and adding 

‘‘section 4262(b) of the Code and 

§ 49.4262–2’’ in its place. 

■ 6. Adding paragraph (e). 

The revisions and additions read as 

follows: 

§ 49.4261–3 Payments made within the 

United States. 

* * * * * 

(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. 

* * * * * 

(e) Applicability date. This section 

applies to amounts paid on and after 

January 19, 2021. For rules that apply 


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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 5003 

before that date, see 26 CFR part 49, 

revised as of April 1, 2020. 

§ 49.4261–4 [Amended] 

■ Par. 8. Section 49.4261–4 is amended 

by: 

■ 1. In paragraph (a), removing the first 

‘‘4261(a)’’ and adding ‘‘4261 of the 

Internal Revenue Code (Code)’’ in its 

place. 

■ 2. In paragraph (a), removing ‘‘section 

4261(a) (see section 4264(d))’’ and 

adding ‘‘section 4261 (see section 

4263(d) of the Code)’’ in its place. 

■ 3. In paragraph (b), removing 

‘‘§ 49.4262(c)–1’’ and adding 

‘‘§ 49.4262–3’’ in its place. 

■ 4. In the first sentence of paragraph 

(d), removing ‘‘§ 49.4262(c)–1’’ and 

adding ‘‘§ 49.4262–3’’ in its place. 

■ 5. In the first sentence of paragraph 

(d), removing ‘‘six-hour’’ and adding 

‘‘12-hour’’ in its place. 

§ 49.4261–5 [Amended] 

■ Par. 9. Section 49.4261–5 is amended 

as follows: 

■ 1. In paragraph (a), removing 

‘‘4261(b)’’ wherever it appears and 

adding ‘‘4261(a) and (b)’’ in its place. 

■ 2. In paragraph (c), removing 

‘‘§ 49.4262(b)–1’’ and adding 

‘‘§ 49.4262–2’’ in its place. 

■ Par. 10. Section 49.4261–7 is 

amended by: 

■ 1. In the introductory paragraph, 

removing ‘‘4263, 4292, 4293, or 4294’’ 

and adding ‘‘4261, 4281, 4282, or 4293 

of the Internal Revenue Code,’’ in its 

place. 

■ 2. Removing and reserving paragraphs 

(b), (d), (e), and (g). 

■ 3. Revising paragraph (h). 

■ 4. In paragraph (i), removing 

‘‘paragraph (c) of § 49.4261–2 and 

paragraph (f)(4) of § 49.4261–8’’ and 

adding ‘‘§§ 49.4261–2(c) and 49.4261– 

8(f)(4)’’ in its place. 

■ 5. Adding paragraph (k). 

The revision and addition read as 

follows: 

§ 49.4261–7 Examples of payments 

subject to tax. 

* * * * * 

(h) Aircraft charters—(1) When no 

charge is made by the charterer of an 

aircraft to the persons transported, the 

amount paid by the charterer for the 

charter of the aircraft is subject to tax. 

(2) The charterer of an aircraft who 

sells transportation to other persons 

must collect and account for the tax 

with respect to all amounts paid to the 

charterer by such other persons. In such 

case, no tax will be due on the amount 

paid by the charterer for the charter of 

the aircraft but it shall be the duty of the 

owner of the aircraft to advise the 

charterer of the charterer’s obligation for 

collecting, accounting for, and paying 

over the tax to the Internal Revenue 

Service. 

* * * * * 

(k) Applicability date. Paragraph (h) of 

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. 

§ 49.4261–8 [Amended] 

■ Par. 11. Section 49.4261–8 is 

amended as follows: 

■ 1. In the introductory paragraph, 

removing ‘‘4263, 4292, 4293, or 4294’’ 

and adding ‘‘4261, 4281, 4282, or 4293 

of the Internal Revenue Code’’ in its 

place. 

■ 2. Paragraphs (f)(2), (3), and (5) are 

removed and reserved. 

■ Par. 12. Section 49.4261–9 is revised 

to read as follows: 

§ 49.4261–9 Mileage awards. 

(a) Tax imposed. Any amount paid 

(and the value of any other benefit 

provided) to an air carrier (or any 

related person) for the right to provide 

mileage awards for or other reductions 

in the cost of any transportation of 

persons by air is an amount paid for 

taxable transportation and is therefore 

subject to the tax imposed by section 

4261(a) of the Internal Revenue Code. 

See section 4261(e)(3)(A). 

(b) [Reserved] 

(c) Applicability date. This section 

applies to amounts paid on and after 

January 19, 2021. 

■ Par. 13. Section 49.4261–10 is revised 

to read as follows: 

§ 49.4261–10 Aircraft management 

services. 

(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. 


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5004 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 

(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 forhire 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 


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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 5005 

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. 

§ 49.4262(a)–1 [Redesignated] 

■ Par. 14. Section 49.4262(a)–1 is 

redesignated as § 49.4262–1. 

■ Par. 15. Newly redesignated 

§ 49.4262–1 is amended by: 

■ 1. In paragraph (a) introductory text, 

removing ‘‘section 4262(b) (see 

§ 49.4262(b)–1)’’ and adding ‘‘section 

4262(b) of the Internal Revenue Code 

(Code) (see § 49.4262–2)’’ in its place. 

■ 2. In the first sentence of paragraph 

(a)(1), removing ‘‘Transportation’’ and 

adding ‘‘Transportation by air’’ in its 

place. 

■ 3. In the first sentence of paragraph 

(a)(1), removing ‘‘(the ‘‘225-mile zone’’)’’ 

and adding ‘‘(225-mile zone)’’ in its 

place. 

■ 4. Revising paragraph (a)(2). 

■ 5. In paragraph (b), removing 

‘‘subparagraphs (1) and (5) of this 

paragraph’’ and adding ‘‘paragraph 

(b)(1) and (5) of this section’’ in its 

place. 

■ 6. In paragraph (b), removing ‘‘subject 

to the tax’’ and adding ‘‘subject to the 

taxes imposed by section 4261(a) and 

(b)’’ in its place. 

■ 7. Revising paragraph (b)(2). 

■ 8. Removing and reserving paragraph 

(c). 

■ 9. Revising introductory paragraph 

(d); designating Example (1) as 

paragraph (d)(1) and revising newly 

designated paragraph (d)(1). 

■ 10. In paragraph (d): 

■ a. Designating Example (2) as 

paragraph (d)(2) and removing and 

reserving newly designated paragraph 

(d)(2). 

■ b. Designating Example (3) as 

paragraph (d)(3) and removing ‘‘6 

hours’’ wherever it appears and adding 

‘‘12 hours’’ in its place and also 

removing ‘‘subject to tax’’ wherever it 

appears and adding ‘‘subject to the taxes 


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5006 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 

imposed by section 4261(a) and (b)’’ in 

its place. 

■ c. Designating Example (4) as 

paragraph (d)(4), and removing ‘‘six 

hours’’ wherever it appears and adding 

‘‘12 hours’’ in its place and also 

removing ‘‘subject to tax’’ wherever it 

appears and adding ‘‘subject to the taxes 

imposed by section 4261(a) and (b)’’ in 

its place. 

■ 11. Revising paragraph (e). 

■ 12. Adding paragraph (f). 

The revisions and addition read as 

follows: 

§ 49.4262–1 Taxable transportation. 

(a) * * * 

(2) In the case of any other 

transportation by air, that portion of 

such transportation that 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 

transportation is not part of 

uninterrupted international air 

transportation within the meaning of 

section 4262(c)(3) of the Code and 

§ 49.4262–3(c). Transportation from one 

port or station in the United States 

occurs whenever a carrier, after leaving 

any port or station in the United States, 

makes a regularly scheduled stop at 

another port or station in the United 

States irrespective of whether stopovers 

are permitted or whether passengers 

disembark. 

* * * * * 

(b) * * * 

(2) New York to Vancouver, Canada, 

with a stop at Toronto, Canada; 

* * * * * 

(d) Examples. The following examples 

illustrate the application of section 

4262(a)(2) and the taxes imposed by 

section 4261(a) and (b) of the Code: 

(1) Example (1). A purchases in New 

York a ticket for air transportation from 

New York to Nassau, Bahamas, with a 

scheduled stopover of 14 hours in 

Miami. The part of the transportation 

from New York to Miami is taxable 

transportation as defined in section 

4262(a) because such transportation is 

from one station in the United States to 

another station in the United States and 

the trip is not uninterrupted 

international air transportation (because 

the scheduled stopover interval in 

Miami is greater than 12 hours). 

Therefore, the amount paid for the 

transportation from New York to Miami 

is subject to the taxes imposed by 

section 4261(a) and (b). 

* * * * * 

(e) Examples of transportation that is 

not taxable transportation. The 

following examples illustrate 

transportation that is not taxable 

transportation: 

(1) New York to Trinidad with no 

intervening stops; 

(2) Minneapolis to Edmonton, 

Canada, with a stop at Winnipeg, 

Canada; 

(3) Los Angeles to Mexico City, 

Mexico, with stops at Tijuana and 

Guadalajara, Mexico; 

(4) New York to Whitehorse, Yukon 

Territory, Canada, by air with a 

scheduled stopover in Chicago of five 

hours. Amounts paid for the 

transportation referred to in examples 

set forth in paragraphs (e)(1), (2), and (3) 

of this section are not subject to the tax 

regardless of where payment is made, 

since none of the trips: 

(i) Begin in the United States or in the 

225–mile zone and end in the United 

States or in the 225–mile zone, nor 

(ii) Contain a portion of transportation 

which is directly or indirectly from one 

port or station in the United States to 

another port or station in the United 

States. The amount paid within the 

United States for the transportation 

referred to in the example set forth in 

paragraph (4) of this section is not 

subject to tax since the entire trip 

(including the domestic portion thereof) 

is uninterrupted international air 

transportation within the meaning of 

section 4262(c)(3) and § 49.4262–3(c). In 

the event the transportation is paid for 

outside the United States, no tax is due 

since the transportation does not begin 

and end in the United States. 

* * * * * 

(f) 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. 

§ 49.4262(b)–1 [Redesignated] 

■ Par. 16. Section 49.4262(b)–1 is 

redesignated as § 49.4262–2. 

■ Par. 17. Newly redesignated 

§ 49.4262–2 is amended as follows: 

■ 1. In paragraph (a), ‘‘section 4262(b)’’ 

is removed and ‘‘section 4262(b) of the 

Internal Revenue Code’’ is added in its 

place. 

■ 2. In paragraph (b)(2), Example (2) is 

removed and reserved. 

■ 3. Revise paragraph (d). 

■ 4. Add paragraph (e). 

The revisions and additions read as 

follows: 

§ 49.4262–2 Exclusion of certain travel. 

* * * * * 

(d) Example. The application of 

paragraph (c) of this section may be 

illustrated by the following example: A 

purchases in San Francisco a ticket for 

transportation by air to Honolulu, 

Hawaii. The portion of the 

transportation which is outside the 

continental United States and is outside 

Hawaii is excluded from taxable 

transportation. The tax applies to that 

part of the payment made by A which 

is applicable to the portion of the 

transportation between the airport in 

San Francisco and the three-mile limit 

off the coast of California (a distance of 

15 miles) and between the three-mile 

limit off the coast of Hawaii and the 

airport in Honolulu (a distance of 5 

miles). The part of the payment made by 

A which is applicable to the taxable 

portion of his transportation and the tax 

due thereon are computed in 

accordance with paragraph (c)(1) as 

follows: 

TABLE 1 TO PARAGRAPH (d) 

Mileage of entire trip (San Francisco airport to Honolulu airport) (miles) ........................................................................................... 2,400 

Mileage in continental United States (miles) ....................................................................................................................................... 15 

Mileage in Hawaii (miles) .................................................................................................................................................................... 5 

20 

Fare from San Francisco to Honolulu ................................................................................................................................................. $168.00 

Payment for taxable portion (20/2400 × $168) ................................................................................................................................... $1.40 

Tax due (7.5% (rate in effect on date of payment) × $1.40) .............................................................................................................. $0.11 

(All distances and fares assumed for 

purposes of this example. This example 

addresses only the computation of the 

tax imposed by section 4261(a). It does 

not address the computation of any 

other tax imposed by section 4261 that 

may apply to these facts.) 

(e) Applicability date. This section 

applies to amounts paid on and after 

January 19, 2021. For rules that apply 


khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 5007 

before that date, see 26 CFR part 49, 

revised as of April 1, 2020. 

§ 49.4262(c)–1 [Redesignated] 

■ Par. 18. Section 49.4262(c)–1 is 

redesignated as § 49.4262–3. 

■ Par. 19. Newly redesignated 

§ 49.4262–3 is amended as follows: 

■ 1. In the first sentence of paragraph 

(a), removing ‘‘includes only the 48 

States existing on July 25, 1956 (the date 

of the enactment of the Act of July 25, 

1956 (Pub. L. 796, 84th Cong., 70 Stat. 

644)) and the District of Columbia’’ and 

adding ‘‘means the District of Columbia 

and the States other than Alaska and 

Hawaii’’ in its place. 

■ 2. In paragraph (a), the last sentence 

is removed. 

■ 3. In paragraph (c), removing ‘‘six 

hours’’ wherever it appears and adding 

‘‘12 hours’’ in its place. 

■ 4. In paragraph (c), removing ‘‘6 

hours’’ wherever it appears and add ‘‘12 

hours’’ in its place. 

■ 5. In paragraph (c), removing ‘‘sixhour’’ wherever it appears and adding 

‘‘12-hour’’ in its place. 

■ 6. In paragraph (c)(2), removing 

‘‘paragraph (a)(2) of § 49.4264(c)–1’’ and 

adding ‘‘§ 49.4263–3(a)(2)’’ in its place. 

■ 7. Adding paragraphs (d) and (e). 

The additions read as follows: 

§ 49.4262–3 Definitions. 

* * * * * 

(d) Transportation. For purposes of 

the regulations in this subpart, the term 

transportation includes layover or 

waiting time and movement of the 

aircraft in deadhead service. 

(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. 

§ 49.4263–5 [Redesignated] 

■ Par. 20. Section 49.4263–5 is 

redesignated as § 49.4281–1. 

■ Par. 21. Newly redesignated 

§ 49.4281–1 is amended by: 

■ 1. Revising paragraphs (a) and (b). 

■ 2. In paragraph (c), adding a sentence 

at the end of the paragraph. 

■ 3. Adding paragraphs (d) and (e). 

The revisions and additions read as 

follows: 

§ 49.4281–1 Small aircraft on 

nonestablished lines. 

(a) In general. Amounts paid for the 

transportation of persons on a small 

aircraft of the type sometimes referred to 

as air taxis shall be exempt from the tax 

imposed under section 4261 of the 

Internal Revenue Code provided the 

aircraft has a maximum certificated 

takeoff weight of 6,000 pounds or less 

determined as provided in paragraph (b) 

of this section. The exemption does not 

apply, however, when the aircraft is 

operated on an established line or when 

the aircraft is a jet aircraft. 

(b) Maximum certificated takeoff 

weight. The term maximum certificated 

takeoff weight means the maximum 

certificated takeoff weight shown in the 

type certificate or airworthiness 

certificate issued by the Federal 

Aviation Administration. 

(c) * * * An aircraft is not considered 

as operated on an established line at any 

time during which the aircraft is being 

operated on a flight the sole purpose of 

which is sightseeing. 

(d) Jet aircraft. For purposes of this 

section, the term jet aircraft does not 

include any aircraft which is a rotorcraft 

(such as a helicopter) or propeller 

aircraft. 

(e) Applicability date. This section 

applies to amounts paid on and January 

19, 2021. For rules that apply before that 

date, see 26 CFR part 49, revised as of 

April 1, 2020. 

§ 49.4264(a)–1 [Redesignated] 

■ Par. 22. Section 49.4264(a)–1 is 

redesignated as § 49.4263–1. 

■ Par. 23. Newly redesignated 

§ 49.4263–1 is revised to read as 

follows: 

§ 49.4263–1 Duty to collect the tax; 

payments made outside the United States. 

(a) Duty to collect tax. Where payment 

upon which tax is imposed by section 

4261 of the Internal Revenue Code is 

made outside the United States for a 

prepaid order, exchange order, or 

similar order, the person furnishing the 

initial transportation pursuant to such 

order must collect the applicable tax. 

See section 4291 and the regulations 

under section 4291 for cases where 

persons receiving payment must collect 

the tax. See section 6672 for rules 

relating to the application of the trust 

fund recovery penalty. 

(b) 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. 

§ 49.4264(b)–1 [Redesignated] 

■ Par. 24. Section 49.4264(b)–1 is 

redesignated as § 49.4263–2. 

§ 49.4263–2 [Amended] 

■ Par. 25. Newly redesignated 

§ 49.4263–2 is amended as follows: 

■ 1. In the first sentence of paragraph 

(a), removing ‘‘4264(b)’’ and adding 

‘‘4263(b) of the Internal Revenue Code 

(Code)’’ in its place. 

■ 2. In the last sentence of paragraph (a), 

removing ‘‘office of the district director 

for the district in which the person 

making the report is located,’’ and 

adding ‘‘Commissioner’’ in its place. 

■ 3. In paragraph (b), adding ‘‘of the 

Code’’ at the end of the paragraph. 

■ 4. In paragraph (c), removing 

‘‘Illustration.’’ and adding ‘‘Example.’’ 

in its place. 

■ 5. In the last sentence of paragraph (c), 

removing ‘‘office of the district director 

of internal revenue for the district in 

which the carrier is located,’’ and 

adding in its place ‘‘Commissioner’’. 

§ 49.4264(c)–1 [Redesignated] 

■ Par. 26. Section 49.4264(c)–1 is 

redesignated as § 49.4263–3. 

■ Par. 27. Newly redesignated 

§ 49.4263–3 is amended by: 

■ 1. Revising paragraph (a). 

■ 2. In paragraph (b), removing the 

second sentence. 

■ 3. In paragraph (b), removing ‘‘4264’’ 

wherever it appears and adding ‘‘4263’’ 

in its place. 

■ 4. In paragraph (b), adding ‘‘of the 

Code’’ after ‘‘4291’’ in the first sentence. 

■ 5. Removing and reserving paragraph 

(c). 

■ 6. Adding paragraph (d). 

The revisions and additions read as 

follows: 

§ 49.4263–3 Special rule for the payment 

of tax. 

(a) In general. For the rules applicable 

under section 4263(c) of the Internal 

Revenue Code, see § 49.4261–1(b)(2). 

* * * * * 

(d) 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. 

§ 49.4264(d)–1 [Redesignated] 

■ Par. 28. Section 49.4264(d)–1 is 

redesignated as § 49.4263–4. 

§ 49.4263–4 [Amended] 

■ Par. 29. Newly redesignated 

§ 49.4263–4 is amended by removing 

‘‘4264(d)’’ and adding ‘‘4263(d)’’ in its 

place. 

§ 49.4264(e)–1 [Redesignated] 

■ Par. 30. Section 49.4264(e)–1 is 

redesignated as § 49.4263–5. 

§ 49.4264(f)–1 [Redesignated] 

■ Par. 31. Section 49.4264(f)–1 is 

redesignated as § 49.4263–6. 

§ 49.4263–6 [Amended] 

■ Par. 32. Newly redesignated 

§ 49.4263–6 is amended by removing 

and reserving paragraph (b). 


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5008 Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations 

■ Par. 33. Section 49.4271–1 is 

amended by revising paragraphs (a) and 

(b) and adding paragraph (g) to read as 

follows: 

§ 49.4271–1 Tax on transportation of 

property by air. 

(a) Purpose of this section. Section 

4271 of the Internal Revenue Code 

(Code) imposes a 6.25 percent tax on 

amounts paid within or without the 

United States for the taxable 

transportation of property (as defined in 

section 4272 of the Code). This section 

sets forth rules as to the general 

applicability of the tax. This section also 

sets forth rules authorized by section 

4272(b)(2) which exempt from tax 

payments for the transportation of 

property by air in the course of 

exportation (including shipment to a 

possession of the United States) by 

continuous movement, and in due 

course so exported. 

(b) Imposition of tax—(1) The tax 

imposed by section 4271 applies only to 

amounts paid to persons engaged in the 

business of transporting property by air 

for hire. 

(2) The tax imposed by section 4271 

does not apply to amounts paid for the 

transportation of property by air if such 

transportation is furnished on an aircraft 

having a maximum certificated takeoff 

weight (as defined in section 4281(b) of 

the Code) of 6,000 pounds or less, 

unless such aircraft is operated on an 

established line or when such aircraft is 

a jet aircraft. The tax imposed by section 

4271 also does not apply to any 

payment made by one member of an 

affiliated group (as defined in section 

4282(b) of the Code) to another member 

of such group for services furnished in 

connection with the use of an aircraft if 

such aircraft is owned or leased by a 

member of the affiliated group and is 

not available for hire by persons who 

are not members of such group. 

* * * * * 

(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. 

■ Par. 34. Section 49.4271–2 is added to 

read as follows: 

§ 49.4271–2 Aircraft management services. 

For rules regarding the exemption for 

certain amounts paid by aircraft owners 

for aircraft management services, see 

§ 49.4261–10. 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. 

§ 49.4282–1 [Reserved] 

■ Par. 35. Add and reserve § 49.4282–1. 

Sunita Lough, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: January 10, 2021. 

David J. Kautter, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2021–00706 Filed 1–14–21; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF EDUCATION 

34 CFR Parts 600, 602, 668, 673, 674, 

682, and 685 

Federal Student Aid Programs 

(Student Assistance General 

Provisions, Federal Perkins Loan 

Program, William D. Ford Federal 

Direct Loan Program, and FederalWork Study Programs) 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Updated waivers and 

modifications of statutory and 

regulatory provisions; correction. 

SUMMARY: On December 11, 2020, the 

Department of Education published in 

the Federal Register a notice updating 

waivers and modifications of statutory 

and regulatory provisions governing the 

Federal student financial aid programs 

under the authority of the Higher 

Education Relief Opportunities for 

Students Act of 2003 (HEROES Act). 

This document corrects the date through 

which certain waivers and 

modifications extend. 

DATES: Effective January 19, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Barbara Hoblitzell, by telephone: (202) 

453–7583 or by email: 

Barbara.Hoblitzell@ed.gov, or Gregory 

Martin, by telephone: (202) 453–7535 or 

by email: Gregory.Martin@ed.gov. 

If you use a telecommunications 

device for the deaf (TDD) or text 

telephone (TTY), call the Federal Relay 

Service (FRS), toll free, at 1–800–877– 

8339. 

SUPPLEMENTARY INFORMATION: 

Corrections: In FR document 2020– 

27042, appearing on page 79856 in the 

Federal Register of December 11, 2020, 

the following corrections are made: 

1. On page 79857, in the third 

column, in the third paragraph, in the 

third sentence, remove the word 

‘‘further’’, and add a new fourth 

sentence ‘‘On December 4, 2020, the 

Secretary further extended those 

benefits through January 31, 2021.’’ 

2. On page 79862, in the first column, 

in the section titled ‘‘Repayment of a 

Loan (34 CFR 682.209)’’, remove the 

fifth sentence and add in its place 

‘‘Following the President’s 

Memorandum of August 8, 2020, and 

the Secretary’s subsequent 

announcement on December 4, 2021, 

the Secretary is further extending until 

January 31, 2021, in accordance with 

the prior announcement, the waivers of 

the regulatory provisions in §§ 682.202 

and 682.209 that require that interest be 

charged on FFEL loans held by the 

Department from March 13, 2020, 

through March 27, 2020, and from 

October 1, 2020 through January 31, 

2021.’’ 

3. On page 79862, in the second 

column, in the section titled ‘‘Obligation 

to Repay (34 CFR 685.207)’’, remove the 

fifth, sixth, and seventh sentences and 

add in their place ‘‘The period of this 

benefit was extended to December 31, 

2020 by the President’s Memorandum of 

August 8, 2020. On December 4, 2020, 

the Secretary further extended the 

period of this benefit through January 

31, 2021. Accordingly, Direct Loans are 

automatically placed in an 

administrative forbearance status that is 

currently scheduled to be in effect from 

March 13, 2020, through January 31, 

2021.’’ 

4. On page 79863, in the first column, 

in the section titled ‘‘Capitalization of 

Interest Under the Income-Contingent 

Repayment Plan (34 CFR 685.209)’’, in 

the second paragraph, remove ‘‘January’’ 

and add in its place ‘‘February’’. 

5. On page 79863, in the first column, 

in the section titled ‘‘Capitalization of 

Interest Under the Income-Contingent 

Repayment Plan (34 CFR 685.209)’’, in 

the fourth paragraph, remove 

‘‘December 31, 2020’’ and add in its 

place ‘‘January 31, 2021’’. 

6. On page 79863, in the second 

column, in the section titled ‘‘Section 

3513 of the CARES Act’’, remove the 

second paragraph and add in its place 

‘‘On August 8, 2020, the President 

issued a memorandum directing the 

Secretary to continue to waive interest 

and payments on such loans until 

December 31, 2020. On December 4, 

2020, the Secretary further extended 

these benefits through January 31, 2021. 

Therefore, in accordance with the prior 

announcement, the Secretary is using 

her authority under the HEROES Act to 

modify the terms of the benefits 

provided under section 3513 of the 

CARES Act such that they will continue 

to be provided to borrowers until 

January 31, 2021.’’ 

Accessible Format: On request to one 

of the program contact persons listed 

under FOR FURTHER INFORMATION


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