Rev. Rul. 77-405

Advice has been requested whether the determination of the applicability of the excise tax on a "flight by flight" basis, as set forth in Rev. Rul. 72-360, 1972-2 C.B. 542, applies to affiliated groups under section 4282(a) of the Internal Revenue Code of 1954.

Section 4282(a) of the Code provides that, if (1) one member of an affiliated group is the owner or lessee of an aircraft, and (2) such aircraft is not available for hire by persons who are not members of such group, no tax shall be imposed under section 4261 or 4271 upon any payment received by one member of the affiliated group from another member of such group for services furnished to such other member in connection with the use of such aircraft. Section 4282(b) provides that for purposes of section 4282(a), the term "affiliated group" has the meaning assigned to such term by section 1504(a), except that all corporations shall be treated as includible corporations (without any exclusion under section 1504(b)).

Section 154.2-1(b)(2) of the Temporary Regulations in Connection with the Airport and Airway Revenue Act of 1970 provides that the tax imposed by section 4271 does not apply to any payment made by one member of an affiliated group (as defined in section 4282(b) of the Code) to another member of such group for services furnished in connection with the use of an aircraft if such aircraft is owned or leased by a member of the affiliated group and is not available for hire by persons who are not members of such group.

Rev. Rul. 72-360, 1972-2 C.B. 542, cites Senate Report No. 91-706, 91st Cong., 2nd Sess. 1970-1 C.B. 386, at 396, 397, which states it was the intention of the Committee to have either the transportation taxes or the fuel taxes, but not both, apply to a single flight and, therefore, the liability for tax under section 4041(c) of the Code or under sections 4261 and 4271 must be determined on a flight-by-flight basis.

Rev. Rul. 72-360 points out that the term "flight by flight" is used to determine whether the transportation or fuel taxes apply where flights are made in commercial and noncommercial aviation as defined in section 4041(c)(4) of the Code. However, Rev. Rul. 72-360 does not apply to affiliated groups under section 4282(a). The fuel taxes under section 4041(c) apply to air transportation of affiliated groups that come within section 4282(a), since such air transportation is defined in section 4041(c)(4) as noncommercial aviation even though the aircraft is used in transporting for compensation or hire cargo or personnel of members of the group.

However, if an aircraft of an affiliated group is available for hire by persons who are not members of such group the use of such aircraft does not come within section 4282(a) of the Code. The determination of whether section 4282(a) applies may not be made on a flight by flight basis. Thus, for example, where an aircraft is available only on certain days of the week or on certain flights for hire by persons who are not members of the affiliated group and is otherwise only for hire by members of the group, section 4282(a) will not apply to any flights. Accordingly, since section 4282 does not apply in such case, then the determination of whether the fuel taxes or the transportation taxes apply will be made on a flight by flight basis.

Rev. Rul. 72-360 is amplified.