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Managers other than the Manager filing nearest dollar)’’ in the Form 13F ADDRESSES: Commenters are strongly this report, enter in the List of Other Information Table Value Total row. encouraged to submit public comments Included Managers all such Managers ■ u. In the List of Other Included electronically. Submit electronic together with any CRD Number or SEC Managers section of the Form 13F submissions via the Federal filing number assigned to each Manager Summary Page, adding ‘‘CRD Number eRulemaking Portal at and, if known, the Managers’ respective (if applicable)’’ and ‘‘SEC Filing Number www.regulations.gov (indicate IRS and Form 13F file numbers (The Form 13F (if applicable)’’ columns; and REG–112042–19) by following the file numbers are assigned to Managers ■ v. In the Form 13F Information Table, online instructions for submitting when they file their first Form 13F.).’’; replacing ‘‘(x$1000)’’ with ‘‘(to the comments. Once submitted to the ■ l. In Special Instruction 9, revising nearest dollar)’’ in the Value Federal eRulemaking Portal, comments ‘‘rounded to the nearest one thousand subcolumn. cannot be edited or withdrawn. The IRS dollars (with ‘‘000’’ omitted)’’ to read By the Commission. expects to have limited personnel ‘‘rounded to the nearest dollar’’; Dated: July 10, 2020. available to process public comments ■ m. Deleting Special Instruction 10 and Vanessa A. Countryman, that are submitted on paper through renumbering Special Instructions 11, 12, Secretary. mail. Until further notice, any and 13 to 10, 11, and 12, respectively; [FR Doc. 2020–15322 Filed 7–30–20; 8:45 am] comments submitted on paper will be ■ n. In renumbered Special Instruction considered to the extent practicable. BILLING CODE 8011–01–P 10, revising ‘‘$100,000,000’’ to read The Department of the Treasury ‘‘$3.5 billion’’; (Treasury Department) and the IRS will ■ o. In renumbered Special Instruction publish for public availability any DEPARTMENT OF THE TREASURY 11.b.i, revising the phrase ‘‘rule 13f–1(c) comment submitted electronically, and (the ‘‘13F List’’)’’ to read ‘‘the 13F List’’; Internal Revenue Service to the extent practicable on paper, to its and public docket. ■ p. Deleting renumbered Special 26 CFR Parts 40 and 49 Send paper submissions to: Instruction 12 in its entirety and CC:PA:LPD:PR (REG–112042–19), Room replacing it with the following: [REG–112042–19] 5203, Internal Revenue Service, P.O. ‘‘Filing of Reports RIN 1545–BP37 Box 7604, Ben Franklin Station, Washington, DC 20044. ■ 13. Reports must be filed Excise Taxes; Transportation of FOR FURTHER INFORMATION CONTACT: electronically using EDGAR in Persons by Air; Transportation of accordance with Regulation S–T. Concerning the proposed regulations, Property by Air; Aircraft Management Michael H. Beker or Rachel S. Smith at Consult the EDGAR Filer Manual and Services Appendices for EDGAR filing (202) 317–6855; concerning submissions instructions.’’ AGENCY: Internal Revenue Service (IRS), of comments and/or requests for a ■ q. Deleting the Paperwork Reduction Treasury. public hearing, Regina Johnson, (202) Act Information section in its entirety ACTION: Notice of proposed rulemaking 317–5177 (not toll-free numbers). and replacing it with the following: and partial withdrawal of notice of SUPPLEMENTARY INFORMATION: proposed rulemaking. ‘‘PAPERWORK REDUCTION ACT Background INFORMATION SUMMARY: This document contains This document contains proposed Persons who are to respond to the proposed regulations relating to the amendments to the Facilities and collection of information contained in excise taxes imposed on certain Services Excise Tax Regulations (26 CFR this form are not required to respond to amounts paid for transportation of part 49) under sections 4261, 4262, the collection of information unless the persons and property by air. 4263, 4264, 4271, 4281, and 4282 of the form displays a currently valid Office of Specifically, the proposed regulations Internal Revenue Code (Code). This Management and Budget (‘‘OMB’’) relate to the exemption for amounts document also contains proposed control number. Please direct comments paid for certain aircraft management amendments to the Excise Tax concerning the accuracy of the services. The proposed regulations also Procedural Regulations (26 CFR part information collection burden estimate amend, revise, redesignate, and remove 40). and any suggestions for reducing the provisions of existing regulations that Section 4261 imposes an excise tax on burden to the Secretary, Securities and are out-of-date or obsolete and generally certain amounts paid for transportation Exchange Commission, Washington, DC update the existing regulations to of persons by air. Section 4271 imposes 20549. OMB has reviewed this incorporate statutory changes, case law, an excise tax on certain amounts paid collection of information under the and other published guidance. In for transportation of property by air. The clearance requirements of 44 U.S.C. addition, the proposed regulations excise taxes imposed by sections 4261 3507.’’; withdraw a provision that was included and 4271 (collectively, air ■ r. In the Institutional Investment in a prior notice of proposed rulemaking transportation excise tax), as well as Manager Filing this Report section on that was never finalized and re-propose certain Federal fuel taxes, are deposited the Cover Page, adding ‘‘CRD Number (if it. The proposed regulations affect into the Airport and Airway Trust Fund, applicable):ll’’ and ‘‘SEC Filing persons that provide air transportation which funds the Federal Aviation Number (if applicable):ll ’’; of persons and property, and persons Administration’s (FAA) operations, air ■ s. In the List of Other Managers that pay for those services. transportation infrastructure, and other Reporting for this Manager section on DATES: Written or electronic comments aviation-related programs. See section the Cover Page, adding ‘‘CRD Number (if and requests for a public hearing must 9502 of the Code. applicable)’’ and ‘‘SEC Filing Number (if be received by September 29, 2020. Section 13822 of Public Law 115–97, applicable)’’ columns; Requests for a public hearing must be 131 Stat. 2054, 2182 (2017), commonly ■ t. In the Report Summary on the Form submitted as prescribed in the referred to as the Tax Cuts and Jobs Act 13F Summary Page, replacing ‘‘Comments and Requests for a Public (TCJA), amended the Code by adding ‘‘(thousands)’’ with ‘‘(round to the Hearing’’ section. paragraph (e)(5) to section 4261. The

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new provision provides that no tax shall The Conference Report further states transportation excise tax for amounts be imposed by section 4261 or 4271 on that participation in a fractional paid by an aircraft owner for aircraft any amount paid by an aircraft owner ownership aircraft program does not management services pursuant to for aircraft management services related constitute ‘‘aircraft ownership’’ for section 4261(e)(5). to: (1) Maintenance and support of the purposes of section 4261(e)(5). Id. During the development of these aircraft owner’s aircraft, or (2) flights on Amounts paid to a fractional ownership proposed regulations, the Treasury the aircraft owner’s aircraft. aircraft program for transportation Department and the IRS received Section 4261(e)(5)(B) defines the term under such a program are already various requests for guidance from ‘‘aircraft management services’’ to exempt from air transportation excise stakeholders (referred to herein as include assisting an aircraft owner with: tax pursuant to section 4261(j) if certain ‘‘commenters’’) related to the first five (1) Administrative and support services, requirements provided in section 4043 issues discussed in part 1 of this such as scheduling, flight planning, and of the Code are satisfied, including that Explanation of Provisions. weather forecasting; (2) obtaining the aircraft is operated under subpart K a. Applicability of Possession, insurance; (3) maintenance, storage, and of part 91 of Title 14 of the Code of Command, and Control Test fueling of aircraft; (4) hiring, training, Federal Regulations (subpart K). Id. and provision of pilots and crew; (5) Flights under a fractional ownership Commenters requested clarification on the applicability of the possession, establishing and complying with safety aircraft program are subject to both the command, and control test in existing standards; and (6) such other services as fuel tax levied on noncommercial guidance to amounts paid for aircraft are necessary to support flights operated aviation and an additional fuel surtax management services in light of section by an aircraft owner. imposed by section 4043 (fuel surtax). 4261(e)(5). The possession, command, Section 4261(e)(5)(C)(i) provides that Id. As a result, the Conference Report and control test is a facts-and- the term ‘‘aircraft owner’’ includes a explains that ‘‘a business arrangement circumstances analytical framework that person who leases an aircraft other than seeking to circumvent the fuel surtax by is used to determine whether a person under a ‘‘disqualified lease.’’ Section operating outside of subpart K, allowing is providing taxable transportation to 4261(e)(5)(C)(ii) defines the term an aircraft owner the right to use any of another person in cases where each of ‘‘disqualified lease’’ for purposes of a fleet of aircraft, be it through an the parties contribute some, but not all, section 4261(e)(5)(C)(i) as a lease from a aircraft interchange agreement, through of the elements necessary for complete person providing aircraft management holding nominal shares in a fleet of air transportation services. See e.g., Rev. services with respect to the aircraft (or aircraft, or any other arrangement that Rul. 60–311 (1960–2 C.B. 341), Rev. Rul. a related person (within the meaning of does not reflect true tax ownership of 70–325 (1970–1 C.B. 231), and Rev. Rul. section 465(b)(3)(C)) to the person the aircraft being flown upon, is not 76–394 (1976–2 C.B. 355). Section providing such services), if the lease is considered ownership for purposes of 4261(e)(5) directly addresses a situation for a term of 31 days or less. [section 4261(e)(5)].’’ Id. that, but for section 4261(e)(5), would be Finally, section 4261(e)(5)(D) provides With regard to the pro rata allocation rule in section 4261(e)(5)(D), the analyzed using the possession, that in the case of amounts paid to any command, and control test. As a result, person which (but for section Conference Report states that in the event that a payment made to an aircraft in situations to which the section 4261(e)(5)) are subject to air 4261(e)(5) exemption applies, the transportation excise tax, a portion of management company is allocated in part to exempt services and flights on possession, command, and control test which consists of amounts described in is not relevant. section 4261(e)(5)(A), section 4261(e)(5) the aircraft owner’s aircraft, and in part shall apply on a pro rata basis only to to flights on aircraft other than that of b. Related-Party Payments the portion which consists of amounts the aircraft owner, air transportation The second issue for which described in section 4261(e)(5)(A). excise tax must be collected on that commenters requested guidance relates The Conference Report accompanying portion of the payment attributable to to the treatment of payments for aircraft the TCJA, H.R. Rep. No. 115–466, at 536 flights on aircraft not owned by the management services made by a person (2017) (Conference Report), explains aircraft owner. Id. at 536. who has a close relationship to the Section 4007 of the Coronavirus Aid, that section 4261(e)(5) ‘‘exempts certain aircraft owner, but is not itself the Relief, and Economic Security Act payments related to the management of owner of the aircraft. The commenters (CARES Act), Public Law 116–136, 134 private aircraft from the excise taxes suggested that payments that are made Stat. 181 (2020), created an excise tax imposed on taxable transportation of by certain parties related to the aircraft holiday on certain aviation taxes by persons by air.’’ The Conference Report owner should be considered as though suspending air transportation excise tax further explains that certain made by the aircraft owner. arrangements that do not qualify a and certain fuel excise taxes from March First, the commenters suggested that person as an ‘‘aircraft owner’’ for 28, 2020, through December 31, 2020. the proposed regulations should treat purposes of section 4261(e)(5) include Nothing in these proposed regulations payments made by one member of an ownership of stock in a commercial should be construed as affecting the affiliated group (as that term is used in airline and participation in a fractional excise tax holiday created by the CARES section 4282) on behalf of an aircraft ownership aircraft program. Id. at 536 Act. In addition, except with regard to owner that is a member of the same n.1190. the provisions in 26 CFR part 40, the affiliated group as being made by the With regard to commercial airlines, Treasury decision adopting these aircraft owner. the Conference Report specifically states proposed regulations as final regulations Second, the commenters suggested that ownership of stock in a commercial will apply no sooner than January 1, that payments made by an owner of a airline cannot qualify an individual as 2021. special purpose entity should be treated an ‘‘aircraft owner’’ of a commercial Explanation of Provisions as being made by the aircraft owner if airline’s aircraft, and amounts paid for the special purpose entity owns the transportation on such flights remain 1. Aircraft Management Services aircraft. For example, individuals and subject to air transportation excise tax. The proposed regulations provide corporations often create a single Id. rules related to the exemption from air member limited liability company

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(SMLLC) to own an aircraft in order to being made by the aircraft owner itself, including the FARs, do not control for comply with FAA regulations or limit the regulations would effectively Federal excise tax purposes. See Rev. liability exposure. In such cases, the expand the exemption in a manner not Rul. 78–75 (1978–1 C.B. 340). Further, owner of the SMLLC often makes authorized by Congress. section 4261(e)(5) makes no reference to payments for aircraft management Additionally, a qualified subchapter S the FARs; under the plain language of services on behalf of the SMLLC. subsidiary (QSub) (as defined in section section 4261(e)(5), its application does Finally, the commenters suggested 1361(b)(3)(B)) that is generally not not depend upon the FAR flight rules that payments made by an aircraft treated as a separate corporation from its under which an aircraft is operated. The owner’s family members, as well as S corporation owner under section Treasury Department and the IRS agree other persons and entities (for example, 1361(b)(3)(A), and a non-corporate, with the commenters’ suggestion. trusts, as well as the trust’s fiduciaries wholly-owned business entity, such as a Accordingly, the proposed regulations and beneficiaries) closely related to an SMLLC, that is disregarded as an entity provide that whether an aircraft owner aircraft owner be treated as being made separate from its owner for Federal operates its aircraft pursuant to the rules by the aircraft owner. For this purpose, income tax purposes (under under FARs Part 91 or pursuant to the the commenters suggested that the §§ 301.7701–1 through 301.7701–3 of rules under FARs Part 135 does not proposed regulations should treat the Procedure and Administration affect the application of section payments for aircraft management Regulations), are each treated as an 4261(e)(5). services made on behalf of the aircraft entity separate from its owner for owner by a family member of the certain Federal excise tax purposes. See d. Charters aircraft owner and by persons and § 1.1361–4(a)(8) of the Income Tax The fourth issue for which entities bearing relationships to the Regulations and § 301.7701–2(c)(2)(v). commenters requested guidance relates aircraft owner described in sections The rules under §§ 1.1361–4(a)(8) and to situations in which an aircraft owner 267(b) and 707(b) of the Code as 301.7701–2(c)(2)(v) were adopted permits an air charter operator (which amounts paid by the aircraft owner. because difficulties arose from the may or may not be the same person as The Treasury Department and the IRS interaction of the rules in section the person or persons providing aircraft understand that it is common practice 1361(b)(3)(A) and §§ 301.7701–1 management services to the aircraft in the private aviation sector for persons through 301.7701–3 with the Federal owner) to use the aircraft owner’s that bear certain close relationships to excise tax rules. It would be contrary to aircraft to provide charter flights. It is an aircraft owner to make payments for the existing rules in §§ 1.1361–4(a)(8) common for an aircraft owner to permit aircraft management services on behalf and 301.7701–2(c)(2)(v) to treat a person an air charter operator to use the aircraft of the aircraft owner. However, or entity that is separate from the owner’s aircraft for a fee (in cash or in exceptions to tax, like deductions, are aircraft owner as the aircraft owner for kind) when the aircraft would otherwise matters of legislative grace, and such purposes of the exemption from air sit idle or when the aircraft is being provisions are construed narrowly. See transportation excise tax in section repositioned and would otherwise not Comm’r v. Nat’l Alfalfa Dehydrating & 4261(e)(5). For these reasons, the carry any passengers. In such instances, Milling Co., 417 U.S. 134, 148–9 (1974) proposed regulations do not adopt the amounts paid for charter flights (‘‘The propriety of a deduction [. . .] commenters’ suggestion to provide a operated on the aircraft owner’s aircraft depends upon legislative grace; and related-party rule. are subject to air transportation excise only as there is clear provision therefor tax, unless otherwise exempt from the can any particular deduction be c. Choice of Flight Rules taxes (for example, in the case of an allowed.’’ (citations omitted)); Shami v. The third issue for which commenters aircraft used as an air ambulance Comm’r, 741 F.3d 560, 567 (5th Cir. requested guidance relates to whether dedicated to acute care emergency 2014) (‘‘Tax credits are a matter of an aircraft owner’s decision to operate medical services under section legislative grace, are only allowed as its aircraft under certain parts of the 4261(g)(2)). See § 49.4261–7(h) for the clearly provided for by statute, and are Federal Aviation Regulations (FARs) rules regarding the taxation of charter narrowly construed.’’ (citation promulgated by the FAA affects the flights. omitted)); Lettie Pate Whitehead Found., application of section 4261(e)(5). Part 91 The commenters suggested that the Inc. v. U.S., 606 F.2d 534, 539 (5th Cir. of the FARs governs general aviation. proposed regulations clarify that the 1979) (‘‘Deductions are matters of However, some aircraft owners choose application of section 4261(e)(5) is not legislative grace and must be narrowly to operate their aircraft under Part 135 affected by an aircraft owner permitting construed.’’ (citation omitted)); Chrysler of the FARs (governing on-demand and a charter operator to use the aircraft Corp. v. Comm’r, 436 F.3d 644, 654 (6th commuter flights), which imposes owner’s aircraft for charter flights. The Cir. 2006) (‘‘While statutes imposing a additional FAA regulatory requirements Treasury Department and the IRS agree tax are generally construed liberally in related to operational safety and with the commenters that, in general, favor of the taxpayer, those granting a enhanced liability protection. the application of section 4261(e)(5) deduction are matters of legislative Commenters suggested that the should not be affected by an aircraft grace and are strictly construed in favor proposed regulations provide that if an owner permitting an aircraft of the government.’’ (citations omitted)). aircraft owner elects to conduct flights management services provider or other Section 4261(e)(5) specifically states on its own aircraft under Part 135 of the person to use the aircraft owner’s that the exemption applies to ‘‘amounts FARs (rather than under Part 91 of the aircraft for for-hire flights (such as paid by an aircraft owner’’ and makes FARs), then payments made by the charter flights, air taxi flights, and no reference to any other entity or aircraft owner for aircraft management flightseeing flights). Accordingly, the arrangement. The Treasury Department services related to those flights qualify proposed regulations provide that and the IRS are concerned that if the for the exemption provided in section whether an aircraft owner permits its regulations were to treat payments for 4261(e)(5) in the same manner as a flight aircraft to be used for for-hire flights aircraft management services made on conducted under Part 91 of the FARs. does not affect the application of section behalf of an aircraft owner (other than It has long been the position of the 4261(e)(5) to amounts paid by the in a principal-agent scenario in which Treasury Department and the IRS that aircraft owner for aircraft management the aircraft owner is the principal) as rules promulgated by the FAA, services.

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The proposed regulations also clarify aircraft management services provider In addition, the proposed regulations that to the extent such for-hire flights to maintain adequate records to show clarify that taxable fuel (as defined in are subject to the tax imposed by section that amounts paid by the aircraft owner section 4083(a)) or any other liquid 4261 or 4271, taxable fuel (as defined in to the aircraft management services taxable under section 4041(c) that is section 4083(a) of the Code) or any other provider relate to aircraft management used as fuel on a flight for which liquid taxable under section 4041(c) of services specifically for the aircraft amounts paid are exempt from the taxes the Code that is used as fuel on such owner’s aircraft or for flights on the imposed by sections 4261 and 4271 by flights is used in commercial aviation, aircraft owner’s aircraft. reason of section 4261(e)(5) is not fuel as that term is defined in section f. Other Proposed Aircraft Management used in commercial aviation, as that 4083(b). See sections 4081(a)(2) and Services Rules term is defined in section 4083(b). See 4041(c) for the applicable fuel tax rates. sections 4081(a)(2) and 4041(c) for the The proposed regulations clarify that e. Payment Arrangements applicable fuel tax rates. the exemption from air transportation Finally, the section 4043 fuel surtax The fifth issue for which commenters excise tax in section 4261(e)(5) is applies to fuel used in fractional requested guidance relates to business limited to private aviation. Section program aircraft operated under FARs decisions made by a person providing 49.4261–10(b)(6) of the proposed Part 91K (14 CFR part 91K) but not to aircraft management services regarding regulations defines ‘‘private aviation’’ as fuel used on flights for which amounts how to charge, invoice, or bill (referred the use of an aircraft for civilian flights paid are exempt by reason of section to collectively herein as ‘‘bill’’ or except scheduled passenger service. 4261(e)(5). The Treasury Department ‘‘billed’’) aircraft owners for their This rule is consistent with the and the IRS are concerned that this services. An aircraft owner may be Conference Report, which explicitly creates an incentive for persons to billed for aircraft management services states that section 4261(e)(5) ‘‘exempts operate flights that would otherwise be in a variety of ways. For example, an certain payments related to the subject to the section 4043 fuel surtax aircraft owner may be charged a management of private aircraft from the outside of FARs Part 91K in order to monthly fee for aircraft management excise taxes imposed on taxable avoid the surtax. In these instances, services and an hourly fee for each hour transportation by air.’’ Conference such persons would likely also argue of flight time. Alternatively, an aircraft Report at 536. that amounts paid for aircraft owner may be billed for specific costs The proposed regulations also clarify management services related to the related to the operation of the aircraft, the application of section 4261(e)(5)(D), fractional program aircraft are exempt which requires a pro rata allocation of plus a mark-up to compensate the from air transportation excise tax under the amounts paid for aircraft aircraft management services provider. section 4261(e)(5). In addition to these two examples, there management services between services To address this issue, the proposed are many other possible arrangements that relate to flights taken by an aircraft regulations include an anti-abuse rule that may be used to bill an aircraft owner on the aircraft owner’s aircraft providing that the section 4261(e)(5) owner based on the particular and services that relate to flights taken exemption does not apply to any agreement between an aircraft owner by an aircraft owner on an aircraft that amount paid for aircraft management is not owned by the aircraft owner. An and the aircraft management services services by a participant in any aircraft that is not owned by the aircraft provider. The commenters suggested transaction or arrangement, or through owner is referred to in the proposed that the proposed regulations should other means, that seeks to circumvent regulations as a ‘‘substitute aircraft.’’ clarify that the manner in which an the surtax imposed by section 4043. In Section 4261(e)(5)(D) limits the section aircraft owner is billed for aircraft addition, the proposed regulations 4261(e)(5) exemption to amounts paid management services should not control clarify that the section 4261(e)(5) for aircraft management services related whether the exemption from air exemption does not apply to amounts transportation excise tax provided in to flights taken by an aircraft owner on paid for aircraft management services section 4261(e)(5) applies to amounts the aircraft owner’s aircraft. Therefore, related to flights on fractional program paid for those services. the section 4261(e)(5) exemption does The Treasury Department and the IRS not extend to those amounts paid for aircraft operated (or required to be agree with the commenters that the aircraft management services that relate operated) under FARs Part 91K. The manner in which an aircraft owner is to flights taken by an aircraft owner on proposed regulations also provide that if billed for aircraft management services a substitute aircraft (that is, an aircraft an amount paid qualifies for both the is a business decision that providers of not owned by the aircraft owner). The exemption provided in section aircraft management services and proposed regulations provide that the 4261(e)(5) and the exemption provided aircraft owners should be free to make pro rata allocation is calculated by in section 4261(j), the section 4261(j) with each other in order to satisfy their applying to the amount paid by the exemption applies to the amount paid particular needs. Accordingly, the aircraft owner for aircraft management and the surtax imposed by section 4043 proposed regulations provide that the services the ratio of flight hours applies to any liquid used in the method or manner by which an aircraft provided on substitute aircraft during fractional program aircraft as fuel. See owner is billed for aircraft management the calendar quarter over the total flight sections 4261(j) and 4043. This services does not affect whether the hours flown by the aircraft owner on provision is consistent with the exemption from air transportation both the aircraft owner’s aircraft and Conference Report and the definition of excise tax provided in section 4261(e)(5) substitute aircraft during the calendar ‘‘aircraft owner’’ in § 49.4261– applies to amounts paid for those quarter. The Treasury Department and 10(b)(3)(B) in the proposed regulations. services. the IRS request comments regarding 2. Additional Proposed Changes to the While the proposed regulations whether the proposed flight hour ratio Regulations acknowledge that the manner in which allocation method is fair and practicable an aircraft owner is billed for aircraft or whether a different allocation method a. Changes to Part 40 management services is a business should be required (and if so, what The privilege to file consolidated decision, the proposed regulations exactly such required method should returns under section 1501 applies only require both the aircraft owner and the be). to income tax returns and not to excise

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tax returns. The proposed regulations Section 49.4261–1(b)(2) of the Revenue Ruling 72–309 (1972–1 C.B. add § 40.0–1(d) to note this rule and proposed regulations reflects the 348) and Revenue Ruling 2002–34 also reflect the rules of §§ 1.1361–4(a)(8) statutory change to section 4263(c) (2002–1 C.B. 1150) regarding the and 301.7701–2(c)(2)(v) that treat QSubs under section 1031 of the Taxpayer computation of the domestic segment and certain business entities as entities Relief Act of 1997, and case law tax and the international travel facilities separate from their owners for Federal interpreting that revision. Under prior tax. excise tax purposes. See also Revenue law, section 4263(c) provided that Section 49.4261–9(a) of the proposed Ruling 2008–18 (2008–1 C.B. 674). where any tax imposed by section 4261 regulations reflects the rule in section Thus, proposed § 40.0–1(d) treats each was not paid at the time payment for 4261(e)(3)(A) regarding the tax business unit that has, or is required to transportation was made, the tax was treatment of mileage awards. The have, a separate Employer Identification paid by the person paying for the Treasury Department and the IRS are Number as a separate person. In the transportation or by the person using currently considering whether to context of air transportation excise tax, the transportation. In other words, the exercise their authority under section this rule applies with respect to both the prior law placed no payment obligation 4261(e)(3)(C) to prescribe rules for person required to pay the tax under on the air carrier. The current version of excluding from the tax base amounts proposed § 49.4261–1(b) and the person section 4263(c) provides that where any attributable to mileage awards that are required to collect and pay over the tax tax imposed by section 4261 is not paid used other than for transportation of under § 40.6011(a)–1(a)(3) and section at the time the payment for persons by air. See Notice 2015–76 4291 of the Code. transportation is made, the air carrier (2015–46 I.R.B. 669). Nothing in these Proposed § 40.0–1(d) was originally providing the initial segment of proposed regulations can be construed proposed on July 29, 2008, in a notice transportation that begins and ends in as an exercise of that authority. The of proposed rulemaking (REG–155087– the United States is liable for the tax. proposed regulations reserve § 49.4261– 05) published in the Federal Register Several courts have rejected arguments 9(b) for the possible future exercise of (73 FR 43890), but the rules in that that current section 4263(c) imposes the authority granted to the Secretary of regulation project have not been only secondary liability for the the Treasury or his delegate under finalized. Because of the length of time applicable section 4261 tax on the air section 4261(e)(3)(C). The regulations under sections 4262 that has passed since it was originally carrier if the tax is not otherwise and 4263 also have generally not been proposed, this document withdraws collected. See Sundance Helicopters, revised since the 1960s. Amendments to proposed § 40.0–1(d) and re-proposes Inc. v. U.S., 104 Fed. Cl. 1, 11 (2012) the Code since then, including the the provision as part of these proposed (‘‘The plain language of IRC [section] repeal of the seats and berths tax, a regulations. 4263(c) provides that the air carrier is to pay the tax if it is not otherwise change to the definition of Existing § 40.6071(a)–3 provides collected. There is no mention of ‘‘uninterrupted international air excise tax return filing rules that apply primary versus secondary liability in the transportation’’ under section only to the quarterly return required text of the statute [. . .] The language of 4262(c)(3), and a change to the rules in under § 40.6011(a)–1(a) for the third IRC [section] 4263(c) clearly imposes a section 4263(c), have rendered certain calendar quarter of 2001. The proposed payment obligation on the air carrier.’’); provisions in the existing regulations regulations remove § 40.6071(a)–3 in its Temsco Helicopters, Inc. v. U.S., 409 obsolete. The proposed regulations entirety because it is obsolete. F.App’x. 64, 67 (9th Cir. 2010) (‘‘nothing remove obsolete provisions and b. Changes to Part 49 in [section] 4263(c) requires that the generally update the existing regulations government first attempt to collect the to conform to current law. The existing regulations under section [air transportation excise tax] from the Section 4264 of the Code was 4261 have not been revised since 1962. purchasers . . .’’); Papillon Airways, redesignated as section 4263 in 1970 by The proposed regulations remove Inc. v. U.S., 105 Fed. Cl. 154, 163 (2012) Title II, section 205(c)(2), of the AADA. existing language relating to taxes on (IRC 4263(c) makes ‘‘the carrier’s However, the regulations under section transportation by rail, motor vehicle, liability conditional on whether the tax 4264 were not similarly redesignated. and water, which have been repealed, was collected at the time payment for The proposed regulations redesignate and otherwise update the existing transportation was made, not whether the current section 4264 regulations as regulations to conform to current law. the government is unsuccessful at section 4263 regulations, remove The proposed regulations also remove collecting the tax.’’ (emphasis in obsolete provisions, and generally references to exemptions that were original)). update the existing regulations to repealed in 1970. More specifically, the Section 49.4261–1(d) of the proposed conform to current law. proposed regulations update § 49.4261– regulations generally incorporates the The proposed regulations update the 1 to reflect: (i) The enactment of the holdings of Revenue Ruling 71–126 rule in § 49.4263–5 (which the proposed international travel facilities tax in 1970 (1971–1 C.B. 363) regarding the general regulations redesignate as § 49.4281–1) (Airport and Airway Development Act applicability of the section 4261 taxes to relating to small aircraft on of 1970 (AADA), Public Law 91–258, 84 the transportation of persons on all nonestablished lines to reflect statutory Stat. 236 (1970)); (ii) the enactment of types of aircraft, and Revenue Ruling changes to the exemption. Specifically, the domestic segment tax in 1997 67–414 (1967–2 C.B. 382) regarding the the current regulation provides, in (Taxpayer Relief Act of 1997, Pub. L. inapplicability of the section 4261 taxes relevant part, that amounts paid to 105–34, 111 Stat. 788 (1997)), and (iii) to the transportation of persons on transport a person on a small aircraft are the current statutory exemptions from hovercraft. ‘‘exempt from the tax imposed under tax under sections 4261(e)(5), 4261(f), Section 49.4261–2 of the proposed section 4261 provided the aircraft: (1) 4261(g), 4261(h), 4261(j), 4281, 4282, regulations generally updates the Has a gross take-off weight of less than and 4293 of the Code. existing regulations to reflect the 12,500 pounds [. . .] and (2) has a Section 49.4261–1(b)(1) of the statutory additions of the domestic passenger seating capacity of less than proposed regulations incorporates the segment tax and the international travel 10 adult passengers, including the payment and collection rules in sections facilities tax to section 4261. This pilot.’’ In 1970, the permissible aircraft 4261(d) and 4291. section also incorporates the holdings in weight to qualify for the exemption for

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small aircraft on nonestablished lines Proposed Applicability Date for the public hearing will be published was reduced to a maximum certificated The regulations, other than § 40.0– in the Federal Register. Announcement take-off weight of 6,000 pounds or less 1(d), generally are proposed to apply on 2020–4 (2020–17 I.R.B. 1) provides that and the maximum passenger seating and after the later of the date of until further notice, public hearings capacity rule was eliminated. AADA, publication of a Treasury decision conducted by the IRS will be held Title II, section 205(a)(1). In 2005, adopting these rules as final regulations telephonically. Any telephonic hearing Congress amended section 4281 to in the Federal Register or January 1, will be made accessible to people with clarify that flights for which the sole 2021. Section 40.0–1(d) of the disabilities. purpose is sightseeing are not regulations is proposed to apply on and Drafting Information considered to be operated on an after the date of publication of a The principal authors of these established line. Safe, Accountable, Treasury decision adopting these rules regulations are Michael H. Beker and Flexible, Efficient Transportation Equity as final regulations in the Federal Rachel S. Smith, Office of the Associate Act: A Legacy for Users, Public Law Register. Chief Counsel (Passthroughs and 109–59, section 11124(a), 119 Stat 1144 Special Analyses Special Industries). However, other (2005). In 2012, Congress amended personnel from the Treasury section 4281 to exclude jet aircraft from This regulation is not subject to review under section 6(b) of Executive Department and the IRS participated in the exemption. FAA Modernization and their development. Reform Act of 2012, Public Law 112–95, Order 12866 pursuant to the section 1107(a), 126 Stat 11 (2012). The Memorandum of Agreement (April 11, List of Subjects 2018) between the Department of the proposed regulations incorporate the 26 CFR Part 40 changes to the exemption for small Treasury and the Office of Management and Budget regarding review of tax Excise taxes, Reporting and aircraft on nonestablished lines as regulations. recordkeeping requirements. described above. Because the regulation does not Section 4282 provides an exemption impose a collection of information on 26 CFR Part 49 from the taxes imposed by section 4261 small entities a Regulatory Flexibility Excise taxes, Reporting and and 4271 for certain transportation by Act (5 U.S.C. chapter 6) analysis is not recordkeeping requirements, Telephone, air for members of an affiliated group. required. Transportation. Pursuant to section 7805(f) of the The Treasury Department and the IRS Proposed Amendments to the Code these regulations have been have not issued regulations regarding Regulations this provision. The proposed regulations submitted to the Chief Counsel for reserve § 49.4282–1 for future rules Advocacy of the Small Business Accordingly, 26 CFR parts 40 and 49 regarding the affiliated group exemption Administration for comment on their are proposed to be amended as follows: impact on small business. under section 4282. PART 40—EXCISE TAX PROCEDURAL The updates to part 49 in these Statement of Availability of IRS REGULATIONS proposed regulations are not Documents ■ Paragraph 1. The authority citation comprehensive and do not fully update IRS Revenue Procedures, Revenue for part 40 is amended by removing the every provision and example that Rulings, Notices and other guidance entry for § 40.6071(a)–3 to read in part require modernization. The updates are cited in this document are published in as follows: intended to address only the most the Internal Revenue Bulletin and are straightforward and well-settled issues; available from the Superintendent of Authority: 26 U.S.C. 7805 * * * they are not intended to introduce new Documents, U.S. Government ■ Par. 2. Section 40.0–1 is amended by rules or address issues that may require Publishing Office, Washington, DC redesignating paragraph (d) as a more nuanced approach. The Treasury 20402, or by visiting the IRS website at paragraph (e), adding a new paragraph Department and the IRS believe that http://www.irs.gov. (d), and revising newly redesignated these updates will help reduce the Comments and Requests for a Public paragraph (e) to read as follows: burden on taxpayers, collectors, and Hearing revenue agents by providing much § 40.0–1 Introduction. needed basic updates to the part 49 Before these proposed amendments to * * * * * regulations. the regulations are adopted as final (d) Person. For purposes of this part, regulations, consideration will be given each business unit that has, or is Effect on Other Documents to comments that are submitted timely required to have, a separate employer to the IRS as prescribed in the preamble identification number is treated as a Revenue Ruling 67–414 (1967–2 C.B. under the ADDRESSES section. The separate person. Thus, business units 382), Revenue Ruling 72–309 (1972–1 Treasury Department and the IRS (for example, a parent corporation and C.B. 348), and Revenue Ruling 2002–34 request comments on all aspects of the a subsidiary corporation, a partner and (2002–1 C.B. 1150) will be obsoleted on proposed regulations. Any electronic the partner’s partnership, or the various the date these regulations are published comments submitted, and to the extent members of a consolidated group), each as final regulations in the Federal practicable any paper comments of which has, or is required to have, a Register. submitted, will be made available at different employer identification Partial Withdrawal of Proposed www.regulations.gov or upon request. number, are separate persons. Regulations A public hearing will be scheduled if (e) Applicability date—(1) Paragraphs requested in writing by any person who (a), (b), and (c). Paragraphs (a), (b), and Under the authority of 26 U.S.C. 7805, timely submits electronic or written (c) of this section apply to returns that § 40.0–1(d) of the notice of proposed comments. Requests for a public hearing relate to periods beginning after March rulemaking (REG–155087–05) published are also encouraged to be made 31, 2013. For rules that apply before that in the Federal Register on July 29, 2008 electronically. If a public hearing is date, see 26 CFR part 40, revised as of (73 FR 43890) is withdrawn. scheduled, notice of the date and time April 1, 2013.

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(2) Paragraph (d). Paragraph (d) of (b) Payment and collection section 4281 of the Code and § 49.4282– this section applies to returns that relate obligations—(1) In general. The taxes 1 for the exemption for small aircraft on to periods beginning on or after [date imposed by section 4261 are collected nonestablished lines. these regulations are published as final taxes. In general, the person making the (f) Exemptions from tax; cross- regulations in the Federal Register]. For payment subject to tax is the taxpayer. references—(1) Aircraft management rules that apply before that date, see 26 See section 4261(d). The person services. For the exemption for certain CFR part 40, revised as of April 1, 2020. receiving the payment is the collector aircraft management services, see (also commonly referred to as the section 4261(e)(5) of the Code and § 40.6071(a)–3 [Removed] collecting agent). See section 4291 of the § 49.4261–10. ■ Par. 3. Section 40.6071(a)–3 is Code. The collector must collect the (2) Hard minerals, oil, and gas. For removed. applicable tax from the taxpayer, report the exemption for certain uses related to the tax on Form 720, Quarterly Federal the exploration, development, or PART 49—FACILITIES AND SERVICES Excise Tax Return, and remit the tax to removal of hard minerals, oil, or gas, see EXCISE TAX REGULATIONS the Internal Revenue Service. See section 4261(f)(1). sections 4291, 6011, and 7501 of the (3) Trees and logging operations. For ■ Par. 4. The authority citation for part Code. See § 40.6011(a)–1 of this chapter the exemption for certain uses related to 49 continues to read in part as follows: and § 49.4291–1. The collector must trees and logging operations, see section Authority: 26 U.S.C. 7805. * * * also make semimonthly deposits of the 4261(f)(2). ■ Par. 5. Section 49.4261–1 is revised to taxes imposed by section 4261. See (4) Air ambulances. For the read as follows: section 6302(e) of the Code. See §§ 40.0– exemption for air ambulances providing 1(c), 40.6302(c)–1, and 40.6302(c)–3 of certain emergency medical § 49.4261–1 Imposition of tax; in general. this chapter. See section 4263(a) and (c) transportation, see section 4261(g). (a) In general. Section 4261 of the of the Code for special rules relating to (5) Skydiving. For the exemption for Internal Revenue Code (Code) imposes the payment and collection of tax. certain skydiving uses, see section three separate taxes on amounts paid for (2) Failure to collect tax. Where any 4261(h). certain transportation of persons by air. tax imposed by section 4261 is not paid (6) Seaplanes. For the exemption for Tax attaches at the time of payment for at the time payment for transportation is certain seaplane segments, see section any transportation taxable under section made, then, to the extent the tax is not 4261(i). 4261. The applicability of each section collected under any other provision of (7) Fractionally-owned aircraft. For 4261 tax is generally determined on a subchapter C of chapter 33 of the Code, the exemption for certain aircraft in flight-by-flight basis. the tax must be paid by the carrier fractional ownership aircraft programs, (1) Percentage tax. Section 4261(a) providing the initial segment of see section 4261(j). transportation that begins or ends in the imposes a 7.5 percent tax on the amount (8) Small aircraft on nonestablished United States. See section 4263(c). In paid for the taxable transportation of lines. For the exemption for certain other words, if an amount paid for any person. See section 4262(a) of the small aircraft on nonestablished lines, transportation is subject to tax under Code and § 49.4262–1(a) for the see section 4281 of the Code and section 4261 and the applicable tax is definition of the term taxable § 49.4281–1. not collected at the time the payment is transportation. (9) Affiliated groups. For the made, the carrier providing the initial exemption for certain transportation of (2) Domestic segment tax. Section segment of transportation that begins or members of an affiliated group, see 4261(b)(1) imposes a $3 tax (indexed ends in the United States is liable for section 4282. annually for inflation pursuant to the tax. See section 6672 of the Code for (10) United States and territories. For section 4261(e)(4)) on the amount paid rules relating to the application of the exemptions authorized by the Secretary for each domestic segment of taxable trust fund recovery penalty. of the Treasury or his delegate for the transportation. See section 4261(b)(2) (c) Type of aircraft. The taxes exclusive use of the United States, see for the definition of the term domestic imposed by section 4261 generally section 4293. segment. The domestic segment tax does apply regardless of the type of aircraft (g) Applicability date. This section not apply to a domestic segment on which the transportation is provided, applies on and after the later of [date beginning or ending at an airport that is provided all of the other conditions for these regulations are published as final a rural airport for the calendar year in liability are present and no specific regulations in the Federal Register] or which the segment begins or ends (as statutory exemption applies. See January 1, 2021. For rules that apply the case may be). See section paragraph (f) of this section for a list of before that date, see 26 CFR part 49, 4261(e)(1)(B) for the definition of the statutory exemptions from tax. Amounts revised as of April 1, 2020. term rural airport. paid for the transportation of persons by ■ Par. 6. Section 49.4261–2 is amended (3) International travel facilities tax. air cushion vehicles, also known as by: Section 4261(c) imposes a $12 tax hovercraft, are not subject to the taxes ■ 1. Revising paragraphs (a) and (b). (indexed annually for inflation pursuant imposed by section 4261. ■ 2. Adding paragraph (d). to section 4261(e)(4)) on any amount (d) Purpose of transportation. The The revisions and addition read as paid (whether within or without the purpose of the transportation (for follows: United States) for any transportation by example, business or pleasure) is not a air that begins or ends in the United factor in determining taxability under § 49.4261–2 Application of tax. States. The international travel facilities section 4261. (a) Tax on total amount paid. The tax tax does not apply to any transportation (e) Routes. Amounts paid for imposed by section 4261(a) of the that is entirely taxable under section transportation may be taxable even if Internal Revenue Code (Code) is 4261(a) (determined without regard to the transportation is not between two measured by the total amount paid for sections 4281 and 4282). See section definite points. Unless otherwise taxable transportation, whether paid in 4261(c)(2). A special rule applies to exempt, a payment for continuous cash or in kind. Alaska and Hawaii flights. See section transportation that begins and ends at (b) Tax on transportation of each 4261(c)(3). the same point is subject to tax. See person. The taxes imposed by section

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4261(b) and (c) of the Code are head (1) Begins in the United States or the ■ 5. In the first sentence of paragraph taxes and, therefore, apply on a per- 225-mile zone and ends outside such (d), removing ‘‘six-hour’’ and adding passenger basis. The taxes apply to each area, ‘‘12-hour’’ in its place. passenger for whom an amount is paid, (2) Begins outside the United States or regardless of whether the payment is the 225-mile zone and ends inside such § 49.4261–5 [Amended] made as a single lump sum or is made area, or ■ Par. 9. Section 49.4261–5 is amended individually for each passenger. In the as follows: (3) Begins outside the United States ■ case of charter flights for which a fixed and ends outside such area, is taxable 1. In paragraph (a), remove ‘‘4261(b)’’ amount is paid, the section 4261(b) and only with respect to such portion of the wherever it appears and add ‘‘4261(a) (c) taxes are computed by multiplying transportation by air which is directly or and (b)’’ in its place. ■ 2. In paragraph (c), remove the applicable rate of tax by the number indirectly from one port or station in the ‘‘§ 49.4262(b)–1’’ and add ‘‘§ 49.4262–2’’ of passengers transported on the aircraft. United States to another port or station in its place. * * * * * in the United States, but only if such ■ Par. 10. Section 49.4261–7 is (d) Applicability date. Paragraphs (a) portion is not a part of ‘‘uninterrupted amended by: and (b) of this section apply on and after international air transportation’’ within ■ 1. In the introductory paragraph, the later of [date these regulations are the meaning of section 4262(c)(3) and removing ‘‘4263, 4292, 4293, or 4294’’ published as final regulations in the § 49.4262–3(c). Thus, on a trip by air and adding ‘‘4261, 4281, 4282 or 4293 Federal Register] or January 1, 2021. For from Chicago to London, England, with of the Internal Revenue Code’’ in its rules that apply before that date, see 26 a stopover at New York, for which place. CFR part 49, revised as of April 1, 2020. payment is made in the United States, ■ 2. Removing and reserving paragraphs ■ Par. 7. Section 49.4261–3 is amended if the portion from Chicago to New York (b), (d), (e), and (g). by: is not a part of ‘‘uninterrupted ■ 3. Revising paragraph (h). international air transportation’’ within ■ ■ 1. Removing ‘‘§ 49.4262(c)–1’’ 4. In paragraph (i), remove ‘‘paragraph the meaning of section 4262(c)(3) and wherever it appears and adding (c) of § 49.4261–2 and paragraph (f)(4) of § 49.4262–3(c), the taxes would apply to ‘‘§ 49.4262–3’’ in its place. § 49.4261–8’’ and add ‘‘§§ 49.4261–2(c) the part of the payment which is ■ and 49.4261–8(f)(4)’’ in its place. 2. In the first sentence of paragraph applicable to the transportation from ■ 5. Adding paragraph (k). (a), removing ‘‘The tax imposed by Chicago to New York. However, if the The revision and addition read as section 4261(a)’’ and adding ‘‘The taxes portion from Chicago to New York is a follows: imposed by section 4261(a) and (b) of part of ‘‘uninterrupted international air the Internal Revenue Code (Code)’’ in its § 49.4261–7 Examples of payments transportation’’ within the meaning of subject to tax. place. section 4262(c)(3) and § 49.4262–3(c), ■ 3. In the second sentence of paragraph the taxes would not apply. * * * * * (h) Aircraft charters—(1) When no (a), adding ‘‘under section 4261(a) and (c) Method of computing tax on charge is made by the charterer of an (b)’’ at the end of the sentence. taxable portion. Where a payment is aircraft to the persons transported, the ■ 4. Removing (b) introductory text and made for transportation which is amount paid by the charterer for the (b)(1) and redesignating paragraph (b)(2) partially taxable under paragraph (b) of as paragraph (b). charter of the aircraft is subject to tax. this section, the tax imposed by section (2) The charterer of an aircraft who ■ 5. Revising newly redesignated 4261(a) may be computed on that sells transportation to other persons paragraph (b). proportion of the total amount paid ■ must collect and account for the tax 6. Revising paragraph (c). which the mileage of the taxable portion with respect to all amounts paid to the ■ 7. In paragraph (d), removing ‘‘section of the transportation bears to the charterer by such other persons. In such 4262(b) and § 49.4262(b)–1’’ and adding mileage of the entire trip. case, no tax will be due on the amount ‘‘section 4262(b) of the Code and * * * * * paid by the charterer for the charter of § 49.4262–2’’ in its place. (e) Applicability date. This section the aircraft but it shall be the duty of the ■ 8. Adding paragraph (e). applies on and after the later of [the date owner of the aircraft to advise the The revisions and additions read as these regulations are published as final charterer of the charterer’s obligation for follows: regulations in the Federal Register] or collecting, accounting for, and paying January 1, 2021. For rules that apply over the tax to the Internal Revenue § 49.4261–3 Payments made within the before that date, see 26 CFR part 49, Service. United States. revised as of April 1, 2020. * * * * * * * * * * § 49.4261–4 [Amended] (k) Applicability date. Paragraph (h) of (b) Other transportation. In the case of this section applies on and after the ■ Par. 8. Section 49.4261–4 is amended transportation, other than that described later of [the date these regulations are by: in paragraph (a) of this section, for published as final regulations in the ■ 1. In paragraph (a), removing the first which payment is made in the United Federal Register] or January 1, 2021. For ‘‘4261(a)’’ and add ‘‘4261 of the Internal States, the taxes imposed by section rules that apply before that date, see 26 Revenue Code (Code)’’ in its place. 4261(a) and (b) apply with respect to the CFR part 49, revised as of April 1, 2020. amount paid for that portion of such ■ 2. In paragraph (a), removing ‘‘section transportation by air which is directly or 4261(a) (see section 4264(d))’’ and § 49.4261–8 [Amended] indirectly from one port or station in the adding ‘‘section 4261 (see section ■ Par. 11. Section 49.4261–8 is United States to another port or station 4263(d) of the Code)’’ in its place. amended as follows: in the United States, but only if such ■ 3. In paragraph (b), removing ■ 1. In the introductory paragraph, portion is not a part of uninterrupted ‘‘§ 49.4262(c)–1’’ and adding remove ‘‘4263, 4292, 4293, or 4294’’ and international air transportation within ‘‘§ 49.4262–3’’ in its place. add ‘‘4261, 4281, 4282 or 4293 of the the meaning of section 4262(c)(3) of the ■ 4. In the first sentence of paragraph Internal Revenue Code’’ in its place. Code and § 49.4262–3(c). Transportation (d), removing ‘‘§ 49.4262(c)–1’’ and ■ 2. Paragraphs (f)(2), (3), and (5) are that: adding ‘‘§ 49.4262–3’’ in its place. removed and reserved.

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■ Par. 12. Section 49.4261–9 is revised (3) Adequate records required. In imposed by section 4043 by operating to read as follows: order to qualify for the exemption in outside of subpart K of 14 CFR part 91, section 4261(e)(5), an aircraft owner and that allows an aircraft owner the right to § 49.4261–9 Mileage awards. aircraft management services provider use any of a fleet of aircraft (through an (a) Tax imposed. Any amount paid must maintain adequate records to show aircraft interchange agreement, through (and the value of any other benefit that the amounts paid by the aircraft holding nominal shares in a fleet of provided) to an air carrier (or any owner to the aircraft management aircraft, or any other similar related person) for the right to provide services provider relate to aircraft arrangement), is not an aircraft owner mileage awards for or other reductions management services specifically for the with respect to any of the aircraft owned in the cost of any transportation of aircraft owner’s aircraft or for flights on or leased as part of that business persons by air is an amount paid for the aircraft owner’s aircraft. arrangement. taxable transportation and is therefore (b) Definitions. This paragraph (4) Disqualified lease. The term subject to the tax imposed by section provides definitions applicable to this disqualified lease has the meaning given 4261(a) of the Internal Revenue Code. section. to it by section 4261(e)(5)(C)(ii). A See section 4261(e)(3)(A). (1) Aircraft management services. The disqualified lease also includes any (b) [Reserved] term aircraft management services arrangement that seeks to circumvent means— (c) Applicability date. This section the rule in section 4261(e)(5)(C)(ii) by (i) Statutory services. The services applies on and after the later of [date providing a lease term that is greater listed in section 4261(e)(5)(B); and than 31 days but does not provide the these regulations are published as final (ii) Other services. Any service regulations in the Federal Register] or lessee with exclusive and uninterrupted (including, but not limited to, access and use of the leased aircraft, as January 1, 2021. purchasing fuel, purchasing aircraft ■ identified by the aircraft’s airframe Par. 13. Section 49.4261–10 is revised parts, and arranging for the fueling of an serial number and tail number. For to read as follows: aircraft owner’s aircraft) provided purposes of the preceding sentence, the § 49.4261–10 Aircraft management directly or indirectly by an aircraft fact that a lease permits the lessee to use services. management services provider to an the aircraft for for-hire flights, as aircraft owner, that is necessary to keep defined in paragraph (b)(5) of this (a) In general—(1) Overview. This the aircraft owner’s aircraft in an section prescribes rules relating to the section, when the lessee is otherwise airworthy state or to provide air not using the aircraft does not, because exemption from tax for amounts paid (in transportation to the aircraft owner on of this fact alone, cause a lease with a cash or in kind) by an aircraft owner to the aircraft owner’s aircraft at a level term that is greater than 31 days to be an aircraft management services and quality of service required under a disqualified lease. provider for certain aircraft management the agreement between the aircraft (5) For-hire flight. The term for-hire services. Pursuant to section 4261(e)(5) owner and the aircraft management flight means the use of an aircraft to of the Internal Revenue Code (Code), the services provider. transport passengers for compensation taxes imposed by sections 4261 and (2) Aircraft management services that is paid in cash or in kind. The term 4271 of the Code do not apply to provider. The term aircraft management includes, but is not limited to, charter amounts paid by an aircraft owner to an services provider means a person that flights, air taxi flights, and sightseeing aircraft management services provider provides aircraft management services, flights (commonly referred to as for aircraft management services related as defined in paragraph (b)(1) of this flightseeing flights). to maintenance and support of the section, to an aircraft owner, as defined (6) Private aviation. The term private aircraft owner’s aircraft; or related to in paragraph (b)(3) of this section. aviation means the use of an aircraft for flights (flight services) on the aircraft (3) Aircraft owner—(i) In general. The civilian flights except scheduled owner’s aircraft. The exemption in term aircraft owner means an individual passenger service. section 4261(e)(5) applies to amounts or entity that leases or owns (that is, (7) Substitute aircraft. The term paid by an aircraft owner to an aircraft holds title to or substantial incidents of substitute aircraft means an aircraft, management services provider for flight ownership in) an aircraft managed by an other than the aircraft owner’s aircraft, services on the aircraft owner’s aircraft, aircraft management services provider that is provided by an aircraft even if the aircraft owner is not on the (commonly referred to as a managed management services provider to the flight. The exemption in section aircraft). The term aircraft owner does aircraft owner when the aircraft owner’s 4261(e)(5) does not apply to amounts not include a lessee of an aircraft under aircraft is not available, regardless of the paid to an aircraft management services a disqualified lease, as defined in reason for the unavailability. provider on behalf of an aircraft owner paragraph (b)(4) of this section. A (c) Substitute Aircraft—(1) Allocation (other than in a principal-agent scenario person that owns stock in a commercial required. If an aircraft management in which the aircraft owner is the airline does not qualify as an aircraft services provider provides flight principal). For example, amounts paid owner of that commercial airline’s services to an aircraft owner on a for aircraft management services by one aircraft. substitute aircraft during a calendar member of an affiliated group (as that (ii) Fractional aircraft ownership and quarter, the taxes imposed by section term is defined in section 4282 of the similar arrangements. A participant in a 4261 (including the taxes imposed by Code) for flights on an aircraft owned by fractional aircraft ownership program, section 4261(b) or (c), as appropriate, on another member of the affiliated group as defined in section 4043(c)(2) of the each passenger transported) or 4271, as are not treated as amounts paid by the Code, does not qualify as an aircraft the case may be, apply to that portion aircraft owner. See paragraph (b) of this owner of the program’s managed aircraft of the amounts paid by the aircraft section for definitions of terms used in if the amount paid for such person’s owner to the aircraft management this section. participation is exempt from the taxes services provider, determined on a pro (2) Private aviation. The exemption in imposed by sections 4261 and 4271 by rata basis, as described in paragraph section 4261(e)(5) is limited to aircraft reason of section 4261(j). Similarly, a (c)(2) of this section, that are related to management services related to aircraft participant in a business arrangement the flight services provided on the used in private aviation. seeking to circumvent the surtax substitute aircraft.

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(2) How calculated. The allocation by specific itemization of costs, flat (ii) Analysis. The tax imposed by described in paragraph (c)(1) of this monthly or hourly fee, or otherwise, section 4261(a) applies on a pro rata section is calculated by applying to the does not affect the application section basis to the pilot’s flight hours on a total amount paid by an aircraft owner 4261(e)(5). substitute aircraft. The allocation is to an aircraft management services (g) Coordination with fuel tax calculated by applying to the $3,000 provider during the calendar quarter the provisions. Taxable fuel (as defined in total amount paid (3 months × $1,000 ratio of— section 4083(a)) or any liquid taxable monthly fee) by the aircraft owner to the (i) Substitute aircraft hours. The total under section 4041(c) that is used as aircraft management services provider flight hours provided on substitute fuel on a flight for which amounts paid during the calendar quarter the ratio of: aircraft during the calendar quarter; over are exempt from the taxes imposed by 50 (the total pilot flight hours provided (ii) Total hours. The sum of— sections 4261 and 4271 by reason of on substitute aircraft during the (A) The total flight hours made on the section 4261(e)(5) is not fuel used in calendar quarter) over 250 (the sum of aircraft owner’s aircraft during the commercial aviation, as that term is the total pilot flight hours on the aircraft calendar quarter; and defined in section 4083(b). See sections owner’s aircraft during the calendar (B) The total flight hours provided to 4081(a)(2) and 4041(c) for the applicable quarter and the total pilot flight hours the aircraft owner on substitute aircraft fuel tax rates. provided on substitute aircraft during during the calendar quarter. (h) Multiple aircraft management the calendar quarter). The computation (d) Choice of flight rules. Whether a × services providers not disqualifying. is as follows: $3,000 (50/250) = $600 flight on an aircraft owner’s aircraft (amount subject to tax). The portion of operates pursuant to the rules under Whether an aircraft owner pays amounts to more than one aircraft management the amount paid that is exempt from the Federal Aviation Regulations prescribed section 4261 taxes by application of by the Federal Aviation Administration services provider for aircraft management services does not affect the section 4261(e)(5) is $2,400. The portion (FARs) Part 91 (14 CFR part 91) or of the amount paid that is subject to the pursuant to the rules under FARs Part application of section 4261(e)(5). (i) Coordination with exemption for tax imposed by section 4261(a) is $600. 135 (14 CFR part 135) does not affect the The tax imposed by section 4261(b) also application of section 4261(e)(5). aircraft in fractional ownership aircraft programs and fuel surtax; no choice of applies to amounts paid for flights on (e) Aircraft available for hire—(1) In substitute aircraft on a per-passenger general. Whether an aircraft owner exemption; anti-abuse rule. The exemption in section 4261(e)(5) does basis. See § 49.4261–2(b) for rules permits an aircraft management services regarding the application of the tax provider or other person to use its not apply to any amount paid for aircraft management services by a imposed by section 4261(b). aircraft to provide for-hire flights (for (2) Example 2—(i) Facts. An aircraft participant in any transaction or example, when the aircraft is not being owner pays a monthly fee to an aircraft arrangement, or through other means, used by the aircraft owner or when the management services provider for that seeks to circumvent the surtax aircraft is being moved in deadhead aircraft management services related to imposed by section 4043. Further, the service) does not affect the application the aircraft owner’s aircraft. When the exemption in section 4261(e)(5) does of section 4261(e)(5). However, an aircraft is not being used by the owner, amount paid for for-hire flights on the not apply to any amounts paid for the owner sometimes permits a charter aircraft owner’s aircraft does not qualify aircraft management services related to company to use the aircraft for charter for the section 4261(e)(5) exemption. flights that are (or are required to be) flights. At other times when the aircraft Therefore, an amount paid for a for-hire operated under FARs Part 91K (14 CFR is not being used by the owner, the flight on an aircraft owner’s aircraft is part 91K). As a result, if an amount paid owner permits a tour operator to use the subject to the tax imposed by section qualifies for both the exemption aircraft for flightseeing tours. All charter 4261 or 4271, as the case may be, unless provided in section 4261(e)(5) and the and flightseeing flights on the aircraft the amount paid is otherwise exempt exemption provided in section 4261(j), constitute taxable transportation, as that from the tax imposed by section 4261 or the exemption provided in section term is defined in section 4262(a), and 4271 other than by reason of section 4261(j) applies to the amount paid and no exemptions (other than section 4261(e)(5). See § 49.4261–7(h) for rules the surtax imposed by section 4043 4261(e)(5)) apply. The aircraft’s relating to the application of the tax applies to any liquid used in the maximum certificated takeoff weight is imposed by section 4261 on amounts managed aircraft as fuel. See sections 7,000 pounds and the aircraft uses paid for charter flights. 4261(j) and 4043. kerosene as fuel. (2) Fuel used on for-hire flights. To (j) Examples. The following examples (ii) Analysis. Amounts paid by the the extent amounts paid for for-hire illustrate the provisions of this section. aircraft owner to the aircraft flights are subject to the tax imposed by (1) Example 1—(i) Facts. An aircraft management services provider for section 4261 or 4271, taxable fuel (as owner, which is organized as aircraft management services related to defined in section 4083(a) of the Code) corporation under state law, pays a the aircraft owner’s own aircraft are or any liquid taxable under section monthly fee of $1,000 to an aircraft exempt under section 4261(e)(5). 4041(c) of the Code that is used as fuel management services provider for the Amounts paid by the charterer or on such flights is used in commercial provision of a pilot for flights on the passengers for the charter flights are aviation, as that term is defined in aircraft owner’s aircraft to transport subject to tax under section 4261(a) and section 4083(b). See sections 4081(a)(2) employees of the aircraft owner’s (b). See § 49.4261–7(h) for rules relating and 4041(c) for the applicable fuel tax business to business meetings. The to the application of the tax imposed by rates. flights constitute taxable transportation, section 4261 on amounts paid for (f) Billing methods. Except as as that term is defined in section charter flights. See § 49.4261–2(b) for provided in paragraph (a)(3) of this 4262(a), and no exemptions (other than rules regarding the application of the tax section (relating to adequate records), section 4261(e)(5)) apply. During the imposed by section 4261(b). Amounts the method an aircraft management first calendar quarter of 2020, the pilot paid by flightseeing customers for services provider bills, invoices, or provides 200 flight hours of service on flightseeing tours are also subject to tax otherwise charges an aircraft owner for the aircraft owner’s aircraft and 50 under section 4261(a) and (b). If a aircraft management services, whether hours of service on a substitute aircraft. payment for a flightseeing tour includes

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charges for nontransportation services, to the taxes imposed by section 4261(a) (4) New York to Whitehorse, Yukon the charges for the nontransportation and (b)’’ in its place. Territory, Canada, by air with a services may be excluded in computing ■ 12. Revising paragraph (e). scheduled stopover in Chicago of five the tax payable provided the payments ■ 13. Adding paragraph (f). hours. Amounts paid for the are separable and provided in exact The revisions and addition read as transportation referred to in examples amounts. See § 49.4261–2(c). The follows: set forth in paragraphs (e)(1), (2), and (3) kerosene used as fuel on the charter § 49.4262–1 Taxable transportation. of this section are not subject to the tax flights and the flightseeing flights is (a) * * * regardless of where payment is made, subject to the tax imposed by section (2) In the case of any other since none of the trips: 4081(a) at the commercial rate. transportation by air, that portion of (i) Begin in the United States or in the (k) Applicability date. This section such transportation that is directly or 225-mile zone and end in the United applies on and after the later of [date indirectly from one port or station in the States or in the 225-mile zone, nor these regulations are published as final United States to another port or station (ii) Contain a portion of transportation regulations in the Federal Register] or in the United States, but only if such which is directly or indirectly from one January 1, 2021. transportation is not part of port or station in the United States to another port or station in the United § 49.4262(a)–1 [Redesignated] uninterrupted international air transportation within the meaning of States. The amount paid within the ■ Par. 14. Section 49.4262(a)–1 is United States for the transportation redesignated as § 49.4262–1. section 4262(c)(3) of the Code and § 49.4262–3(c). Transportation from one referred to in the example set forth in ■ Par. 15. Newly redesignated paragraph (4) of this section is not § 49.4262–1 is amended by: port or station in the United States occurs whenever a carrier, after leaving subject to tax since the entire trip ■ 1. In paragraph (a) introductory text, (including the domestic portion thereof) removing ‘‘section 4262(b) (see any port or station in the United States, makes a regularly scheduled stop at is ‘‘uninterrupted international air § 49.4262(b)–1)’’ and adding ‘‘section transportation’’ within the meaning of 4262(b) of the Internal Revenue Code another port or station in the United States irrespective of whether stopovers section 4262(c)(3) and paragraph (c) of (Code) (see § 49.4262–2)’’ in its place. § 49.4262–3. In the event the ■ 2. In the first sentence of paragraph are permitted or whether passengers disembark. transportation is paid for outside the (a)(1), removing ‘‘Transportation’’ and United States, no tax is due since the adding ‘‘Transportation by air’’ in its * * * * * transportation does not begin and end in (b) * * * place. the United States. ■ 3. In the first sentence of paragraph (2) New York to Vancouver, Canada, (a)(1), removing ‘‘(the ‘‘225-mile zone’’)’’ with a stop at Toronto, Canada; * * * * * and adding ‘‘(225-mile zone)’’ in its * * * * * (f) Applicability date. This section place. (d) Examples. The following examples applies on and after the later of [date ■ 4. Revising paragraphs (a)(2) and illustrate the application of section these regulations are published as final (b)(2). 4262(a)(2) and the taxes imposed by regulations in the Federal Register] or ■ 5. In paragraph (b), removing section 4261(a) and (b) of the Code: January 1, 2021. For rules that apply ‘‘subparagraphs (1) and (5) of this (1) Example (i). A purchases in New before that date, see 26 CFR part 49, paragraph’’ and adding ‘‘paragraph York a ticket for air transportation from revised as of April 1, 2020. (b)(1) and (5) of this section’’ in its New York to Nassau, Bahamas, with a § 49.4262(b)–1 [Redesignated] scheduled stopover of 14 hours in place. ■ Par. 16. Section 49.4262(b)–1 is ■ Miami. The part of the transportation 6. In paragraph (b), removing ‘‘subject redesignated as § 49.4262–2. to the tax’’ and adding ‘‘subject to the from New York to Miami is taxable taxes imposed by section 4261(a) and transportation as defined in section § 49.4262–2 [Amended] (b)’’ in its place. 4262(a) because such transportation is ■ Par. 17. Newly redesignated ■ 7. Removing and reserving paragraph from one station in the United States to § 49.4262–2 is amended as follows: (c). another station in the United States and ■ 1. In paragraph (a), ‘‘section 4262(b)’’ ■ 8. Revising introductory paragraph the trip is not uninterrupted is removed and ‘‘section 4262(b) of the (d); designating Example (1) as international air transportation (because Internal Revenue Code’’ is added in its paragraph (d)(1) and revising new the scheduled stopover interval in place. paragraph (d)(1) Example 1. Miami is greater than 12 hours). ■ 2. In paragraph (b)(2), Example (2) is ■ 9. In paragraph (d), designating Therefore, the amount paid for the removed and reserved. Example (2) as (d)(2) and removing and transportation from New York to Miami ■ 3. Revise paragraph (d). ‘‘Illustration’’ reserving newly designated paragraph is subject to the taxes imposed by and add ‘‘Example’’ in its place. (d)(2) Example 2. section 4261(a) and (b). The revisions and additions reads as ■ 10. In paragraph (d), designating * * * * * follows: Example (3) as paragraph (d)(3) and (e) Examples of transportation that is removing ‘‘6 hours’’ wherever it appears not taxable transportation. The § 49.4262–2 Exclusion of certain travel. and adding ‘‘12 hours’’ in its place and following examples illustrate * * * * * also removing ‘‘subject to tax’’ wherever transportation that is not taxable (d) Example. The application of it appears and adding ‘‘subject to the transportation: paragraph (c) of this section may be taxes imposed by section 4261(a) and (1) New York to Trinidad with no illustrated by the following example: A (b)’’ in its place. intervening stops; purchases in San Francisco a ticket for ■ 11. In paragraph (d), designating (2) Minneapolis to Edmonton, transportation by air to Honolulu, Example (4) as paragraph (d)(4), and Canada, with a stop at Winnipeg, Hawaii. The portion of the removing ‘‘six hours’’ wherever it Canada; transportation which is outside the appears and adding ‘‘12 hours’’ in its (3) Los Angeles to Mexico City, continental United States and is outside place and also removing ‘‘subject to tax’’ Mexico, with stops at Tijuana and Hawaii is excluded from taxable wherever it appears and adding ‘‘subject Guadalajara, Mexico; transportation. The tax applies to that

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part of the payment made by A which waiting time and movement of the § 49.4263–1 Duty to collect the tax; is applicable to the portion of the aircraft in deadhead service. payments made outside the United States. transportation between the airport in (e) Applicability date. This section Where payment upon which tax is San Francisco and the three-mile limit applies on and after the later of [date imposed by section 4261 of the Internal off the coast of California (a distance of these regulations are published as final Revenue Code is made outside the 15 miles) and between the three-mile regulations in the Federal Register] or United States for a prepaid order, limit off the coast of Hawaii and the January 1, 2021. For rules that apply exchange order, or similar order, the airport in Honolulu (a distance of 5 before that date, see 26 CFR part 49, person furnishing the initial miles). The part of the payment made by revised as of April 1, 2020. transportation pursuant to such order A which is applicable to the taxable shall collect the applicable tax. See portion of his transportation and the tax § 49.4263–5 [Redesignated] section 4291 and the regulations due thereon are computed in ■ Par. 20. Section 49.4263–5 is thereunder for cases where persons accordance with paragraph (c)(1) as redesignated as § 49.4281–1. receiving payment must collect the tax. follows: ■ Par. 21. Newly redesignated § 49.4281–1 is amended by: § 49.4264(b)–1 [Redesignated] Mileage of entire trip (San Francisco air- ■ 1. Revising paragraphs (a) and (b). ■ Par. 24. Section 49.4264(b)–1 is port to Honolulu airport) (miles) ...... 2,400 redesignated as § 49.4263–2. Mileage in continental United States ■ 2. In paragraph (c), adding a sentence (miles) ...... 15 at the end of the paragraph. § 49.4263–2 [Amended] Mileage in Hawaii (miles) ...... 5 ■ 3. Adding paragraphs (d) and (e). ■ Par. 25. Newly redesignated The revisions and additions read as 20 § 49.4263–2 is amended as follows: Fare from San Francisco to Honolulu .... $168.00 follows: ■ Payment for taxable portion (20/2400 × 1. In the first sentence of paragraph $168) ...... $1.40 § 49.4281–1 Small aircraft on (a), remove ‘‘4264(b)’’ and add ‘‘4263(b) Tax due (7.5% (rate in effect on date of nonestablished lines. of the Internal Revenue Code (Code)’’ in payment) × $1.40) ...... $0.11 (a) In general. Amounts paid for the its place. (All distances and fares assumed for transportation of persons on a small ■ 2. In the last sentence of paragraph (a), purposes of this example. This example aircraft of the type sometimes referred to remove ‘‘office of the district director for only addresses the computation of the as air taxis shall be exempt from the tax the district in which the person making tax imposed by section 4261(a). It does imposed under section 4261 of the the report is located,’’ and add not address the computation of any Internal Revenue Code provided the ‘‘Commissioner’’ in its place. other tax imposed by section 4261 that aircraft has a maximum certificated ■ 3. In paragraph (b), add ‘‘of the Code’’ may apply to these facts.) takeoff weight of 6,000 pounds or less at the end of the paragraph. ■ 4. In paragraph (c), remove § 49.4262(c)–1 [Redesignated] determined as provided in paragraph (b) ‘‘Illustration.’’ and add ‘‘Example.’’ in ■ of this section. The exemption does not Par. 18. Section 49.4262(c)–1 is apply, however, when the aircraft is its place. redesignated as § 49.4262–3. operated on an established line or when ■ 5. In the last sentence of paragraph (c), ■ Par. 19. Newly redesignated the aircraft is a jet aircraft. remove ‘‘office of the district director of § 49.4262–3 is amended as follows: (b) Maximum certificated takeoff internal revenue for the district in ■ 1. In the first sentence of paragraph weight. The term maximum certificated which the carrier is located,’’ and add (a), remove ‘‘includes only the 48 States takeoff weight means the maximum in its place ‘‘Commissioner’’. existing on July 25, 1956 (the date of the certificated takeoff weight shown in the enactment of the Act of July 25, 1956 § 49.4264(c)–1 [Redesignated] type certificate or airworthiness (Pub. L. 796, 84th Cong., 70 Stat. 644) certificate issued by the Federal ■ Par. 26. Section 49.4264(c)–1 is and the District of Columbia’’ and add Aviation Administration. redesignated as § 49.4263–3. ‘‘means the District of Columbia and the ■ Par. 27. Newly redesignated States other than Alaska and Hawaii’’ in (c) * * * An aircraft is not considered as operated on an established line at any § 49.4263–3 is amended by: its place. ■ 1. Removing ‘‘a district director’’ ■ 2. In paragraph (a), the last sentence time during which the aircraft is being operated on a flight the sole purpose of wherever it appears and adding is removed. ‘‘Commissioner’’ in its place. ■ 3. In paragraph (c), remove ‘‘six which is sightseeing. ■ 2. Revising paragraph (a). hours’’ wherever it appears and add ‘‘12 (d) Jet aircraft. For purposes of this ■ 3. In paragraph (b), removing the hours’’ in its place. section, the term jet aircraft does not ■ 4. In paragraph (c), remove ‘‘6 hours’’ include any aircraft which is a rotorcraft second sentence. ■ wherever it appears and add ‘‘12 hours’’ (such as a helicopter) or propeller 4. In paragraph (b), removing ‘‘4264’’ in its place. aircraft. wherever it appears and adding ‘‘4263’’ ■ 5. In paragraph (c), remove ‘‘six-hour’’ (e) Applicability date. This section in its place. wherever it appears and add ‘‘12-hour’’ applies on and after the later of [date ■ 5. In paragraph (b), add ‘‘of the Code’’ in its place. these regulations are published as final after ‘‘4291’’. ■ 6. In paragraph (c)(2), remove regulations in the Federal Register] or ■ 6. Removing and reserving paragraph ‘‘paragraph (a)(2) of § 49.4264(c)–1’’ and January 1, 2021. For rules that apply (c). add ‘‘§ 49.4263–3(a)(2)’’ in its place. before that date, see 26 CFR part 49, The revisions read as follows: ■ revised as of April 1, 2020. 7. Adding paragraphs (d) and (e). § 49.4263–3 Special rule for the payment The additions read as follows: § 49.4264(a)–1 [Redesignated] of tax. § 49.4262–3 Definitions. ■ Par. 22. Section 49.4264(a)–1 is (a) In general—(1) For the rules * * * * * redesignated as § 49.4263–1. applicable under section 4263(c) of the (d) Transportation. For purposes of ■ Par. 23. Newly redesignated Internal Revenue Code, see § 49.4261– the regulations in this subpart, the term § 49.4263–1 is revised to read as 1(b). transportation includes layover or follows: * * * * *

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§ 49.4264(d)–1 [Redesignated] ■ Par. 34. Section 49.4271–2 is added to pursuant to 39 CFR 3050.11.1 UPS ■ Par. 28. Section 49.4264(d)–1 is read as follows: requests the Commission to initiate a redesignated as § 49.4263–4. proceeding to change how the Postal § 49.4271–2 Aircraft management services. Service determines incremental costs § 49.4263–4 [Amended] For rules regarding the exemption for and how it accounts for peak-season ■ Par. 29. Newly redesignated certain amounts paid by aircraft owners costs in its periodic reports. Petition at § 49.4263–4 is amended by removing for aircraft management services, see 1. UPS contends that pursuant to 39 ‘‘4264(d)’’ and adding ‘‘4263(d)’’ in its § 49.4261–10. U.S.C. 3652(a), these periodic reports place. § 49.4282–1 [Reserved] apply the Postal Service’s costing methodologies to determine, among § 49.4264(e)–1 [Redesignated] ■ Par. 35. Add and reserve § 49.4282–1. other things, ‘‘whether the Postal ■ Par. 30. Section 49.4264(e)–1 is Sunita Lough, Service’s ‘costs, revenues, rates, and redesignated as § 49.4263–5. Deputy Commissioner for Services and quality of service’ comply with Title 39, § 49.4264(f)–1 [Redesignated] Enforcement. including [section] 3633, which applies to competitive products.’’ Id. ■ Par. 31. Section 49.4264(f)–1 is [FR Doc. 2020–15504 Filed 7–29–20; 11:15 am] redesignated as § 49.4263–6. BILLING CODE 4830–01–P II. Summary of the Petition § 49.4263–6 [Amended] UPS alleges that the Postal Service’s current costing models do not fully ■ Par. 32. Newly redesignated account for the increase in peak-season § 49.4263–6 is amended by removing POSTAL REGULATORY COMMISSION costs driven by package shipments. Id. and reserving paragraph (b). UPS asserts that these shipments ‘‘take ■ Par. 33. In § 49.4271–1, revise 39 CFR Part 3050 on sharply different seasonal patterns paragraphs (a) and (b) to read as follows: [Docket No. RM2020–9; Order No. 5586] than letters,’’ which causes a § 49.4271–1 Tax on transportation of ‘‘disconnect between costing models property by air. Periodic Reporting and package delivery.’’ Id. at 1–2. UPS (a) Purpose of this section. Section asserts further that peak-season costs 4271 of the Internal Revenue Code AGENCY: Postal Regulatory Commission. incurred in December and caused by (Code) imposes a 6.25% tax on amounts ACTION: Notice of proposed rulemaking. competitive products would not exist if paid within or without the United States the Postal Service did not deliver for the taxable transportation of SUMMARY: The Commission is requesting packages and that, therefore, these costs property (as defined in section 4272). that they initiate an informal are incremental costs, which should be This section sets forth rules as to the rulemaking proceeding to change how attributed to competitive products. Id. at general applicability of the tax. This the Postal Service determines 2–3. Based on its analysis, UPS alleges section also sets forth rules authorized incremental costs and how it accounts that the current costing models fail to by section 4272(b)(2) of the Code which for peak-season costs in its periodic attribute approximately $500 million of exempt from tax payments for the reports. This rulemaking informs the the ‘‘additional peak-season costs’’ transportation of property by air in the public of the filing, invites public annually, thereby ‘‘effectively ignoring course of exportation (including comment, and takes other them’’ under 39 U.S.C. 3633(a). Id. at 3. shipment to a possession of the United administrative steps. According to UPS, this alleged failure States) by continuous movement, and in DATES: Technical conference to be held: may be contributing to the Postal due course so exported. September 29, 2020 at 11 a.m. EST. Service’s growing losses. Id. at 4. (b) Imposition of tax. (1) The tax Notice of Intent to Participate due: UPS requests the Commission to imposed by section 4271 applies only to September 14, 2020. address the alleged failure of existing amounts paid to persons engaged in the ADDRESSES: Submit comments cost models by directing the Postal business of transporting property by air electronically via the Commission’s Service to: for hire. Filing Online system at http:// (1) Attribute what UPS characterizes (2) The tax imposed by section 4271 www.prc.gov. Those who cannot submit as ‘‘unexplained peak-season costs’’ to does not apply to amounts paid for the comments electronically should contact competitive products as a group under transportation of property by air if such the person identified in the FOR FURTHER the incremental cost test utilized for 39 transportation is furnished on an aircraft INFORMATION CONTACT section by U.S.C. 3633(a)(1). having a maximum certificated takeoff telephone for advice on filing (2) Properly analyze the seasonality weight (as defined in section 4281(b) of alternatives. effects and revise the cost models to accurately account for such effects, with the Code) of 6,000 pounds or less, FOR FURTHER INFORMATION CONTACT: unless such aircraft is operated on an respect to 39 U.S.C. 3633(a)(2). David A. Trissell, General Counsel, at (3) Produce additional data regarding established line or when such aircraft is 202–789–6820. peak-season operations, which would a jet aircraft. The tax imposed by section lead to an improved costing 4271 also does not apply to any SUPPLEMENTARY INFORMATION: methodology. payment made by one member of an Table of Contents (4) Develop a new methodological affiliated group (as defined in section I. Introduction approach for 39 U.S.C. 3633(a)(1) and 4282(b) of the Code) to another member II. Summary of the Petition (a)(2) that addresses more generally of such group for services furnished in III. Commission Analysis connection with the use of an aircraft if IV. Video Technical Conference 1 Petition of United Parcel Service, Inc. for the such aircraft is owned or leased by a V. Ordering Paragraphs Initiation of Proceedings to Make Changes to Postal member of the affiliated group and is Service Costing Methodologies, May 29, 2020 not available for hire by persons who I. Introduction (Petition). UPS also filed a library reference in support of the Petition. See Notice of Filing of are not members of such group. On May 29, 2020, United Parcel Library Reference UPS–LR–RM2020–9/1, May 29, * * * * * Service, Inc. (UPS) filed a petition 2020.

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