Advocate Consulting Helps Clear The Haze

by ANN Correspondent Chris Esposito

Advocate Consulting President Louis Meiners, Jr. sat down with ANN recently at AirVenture 2007, to discuss common misconceptions about taxes in the aviation industry, and offered some tips to reduce the tax burden on individuals as well as corporations. Meiners is a CPA and attorney as well as a 4000 hour pilot. He has been consulting with aviation-specific risks for several years.

Most pilots are concerned with the write-off process for business-use aircraft. Meiners says if aircraft is used for business more than fifty percent of the time, and this time is properly documented, businesses "get to write off their airplane." If the airplane is used for business purposes less than fifty percent of the time, the tax benefits are not as substantial, as the aircraft is considered a "hobby" expense. Meiners says typically aircraft can be written off over a period of five years, and depreciation factors into this deduction.

For aircraft owners operating their planes for pleasure, Meiners says "in some cases it's possible for them to write off the part of the airplane that's personal." The aircraft could be considered listed property for a deduction in certain instances, though special documents would be required.

Typically, contemporaneous laws require documents explaining where and when the aircraft was used, the purpose of each aircraft trip, and the interests of those on board.

Aircraft owners using their planes for an occasional trip to a second home, for instance, want to ask themselves what the primary purpose of the trip is. While the laws are intended to offer tax breaks only for true business purposes, Meiners says there is "no statutory requirement that you can't have fun." Family trips are not so simple, as justifying a true business outing may be difficult.

The IRS has special examination procedures for aircraft owners, Meiners explained. A business plan detailing the business use of the aircraft is highly recommended in case the Feds come knocking. "Other than that," says Meiners, "an airplane is no different than any other business tool."

"There are often opportunities to control if you owe sales tax on an airplane." explains Meiners. The key is how you buy the aircraft. If an LLC is sold and an airplane is an asset of the LLC, the tax aspects of the sale are much different than if the airplane was sold as an object. If an airplane is bought in a state with no tax, and brought back to a state that would have had a tax, a use tax is typically due. A use tax is a compensatory tax that is intended to mirror sales tax. Usually it is much easier to control a use tax, as some states have significant exemptions on these taxes. Meiners says the states that have exemptions still send out a request for the tax due, even if the airplane could be bought tax-free.

As many ANN readers are aware, Maine has been trying to tax pilots flying their aircraft into the state for extended periods of time. To help avoid this issue, Meiners recommends suppressing your N number. It is "too easy for states to arbitrarily send out notices to people." explains Meiners. The NBAA designed the Block Aircraft Registration Request (BARR) program, which prevents your airplane from being identified by flight tracking software. This increases your privacy and makes it harder for states to stick taxes on aircraft that are not based there.

A common misconception, according to Meiners, is that Delaware corporations provide an adequate tax shield. Meiners actually recommends Nevada corporations, as Nevada has secrecy laws that make it difficult for other states to track aircraft and find out who the airplane owner is.

Tax exemptions have long been a mystery to aviators. The mission of Advocate Consulting and similar firms is to simplify the complex tax deduction process specific to aviation. Aviators and business owners should consider consulting with a CPA and attorney experienced in the aviation realm, as they are likely to shield some of your money from Uncle Sam.

After all, taxation with representation isn't so great either.

FMI: http://web.nbaa.org/public/ops/asdi/, www.advocatetax.com/