IRS grounds tax refunds for airline passengers

By Ken Berry
 
Despite earlier reports, passengers who booked flights before certain excise taxes for airline travel expired won't be entitled to tax refunds after all.
 
The federal excise taxes were suspended after a stand-off in Congress on July 22, 2011 regarding Federal Aviation Association (FAA) operations. Almost 4,000 FAA employees were furloughed and over 200 projects were immediately put on hold. However, the Senate approved legislation ending the shutdown on August 5, 2011 and airlines were authorized to reinstate the taxes on August 8, 2011. The measure was also signed by President Obama on August 5, 2011, providing temporary funding of the FAA until September 26, 2011.
 
Initially, the Internal Revenue Service indicated that passengers who purchased their tickets before July 23, 2011 for travel scheduled after July 22, 2011 would be reimbursed for taxes collected by the airlines. The airlines were instructed to remain on stand-by while the IRS worked out the refund procedures. But the IRS now says that passengers who took flights during the two-week shutdown aren't eligible for any refunds. The IRS also indicated that it intends to provide relief to passengers and airlines relating to ticket taxes that were not paid or collected because of the suspended services.
 
Typically, airline passengers are charged federal excise taxes, which are included in the standard cost of the air fare. The airlines collect these taxes and remit them to the IRS. This includes the following taxes which were suspended during the shutdown:
In a nutshell...

Tax-related news about consumer issues presents an excellent opportunity to contact clients. Make sure your clients are aware of how this news affects them.
 
  • 7.5 percent tax on the base ticket price;
  • $3.70 per person per trip segment;
  • International travel facilities tax of $16.30 per person for flights that begin or end in the U.S. or $8.20 per person for flights that begin or end in Alaska or Hawaii; and
  • 6.25 percent on the amount paid for transporting property by air.
 
When you add it all up, it comes out to much more than spare change for airline travelers. The taxes can be as high as 15 percent of the ticket price.
 
Strategy: Don't let your clients be misled by incomplete news reports or misinformation on this matter. They may be expecting a big tax refund that won't be coming their way. It's no fun being the bearer of bad news, but it's important to keep your clients completely up-to-date and informed about the latest tax developments.  
 

 

You may like these other stories...

London Stock Exchange switches auditing to EYThe London Stock Exchange will drop PwC as its auditor and replace it with EY after completion of the audit for the year ending March 2014, Harriet Agnew of the Financial Times...
With tax season in the past, it's time to think about the tax implications of decisions your clients may be making about their homes in 2014. The rules are complicated and because of the huge amounts involved, the...
IRS revokes group’s tax exemption over anti-Clinton statementsGregory Korte of the USA Today reported on Monday that the IRS has revoked the tax-exempt status of a conservative-aligned charity, the Patrick Henry Center...

Upcoming CPE Webinars

Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.
May 1
This material focuses on the principles of accounting for non-profit organizations’ expenses. It will include discussions of functional expense categories, accounting for functional expenses and allocations of joint costs.