Because airline tickets are usually sold in advance, the revenue recognized does not coincide with the passenger's tax liability, which is recorded when the ticket is purchased. Interline agreements specify the source of accepted published fares and procedures and describe the process of settling funds between participating airlines. Interline agreements are established in order to simplify the ticketing process and minimize the number of tickets necessary to complete an itinerary that involves more than one air carrier.
Carriers remit the transportation tax on the basis of their ticket stock sales.
If a ticket is used on another airline, that airline bills the selling airline for only the fare, not the air transportation tax. The liability for air transportation tax is normally recorded by each individual carrier's accounting system. In addition, some smaller commercial airlines may have contractual agreements with a major airline that allow the smaller airlines to use the major airline's ticket stock and system to record passenger air fares. The tax liability is lifted or recorded from the major carrier's ticket stock, which is used to record the smaller carriers' airfare. Examination Techniques Request consolidated workpapers used to prepare Form 720.