IRS Not to Pursue Airline Passengers for Retroactive Ticket Taxes

Jonathan Davis Jonathan Davis

Due to retroactive tax legislation, airline passengers who purchased tickets between July 23rd through and including August 7th may not have been charged for certain Federal ticket taxes that the airlines should have charged.   On a per passenger basis, the taxes (if properly charged) would have been:

  • 7.5% of the base ticket price
  • $3.70 times the number of segments on the flight (each takeoff + landing combination)
  • $16.30 for international flights that begin or end in the US, or $8.20 for each flight begins or ends in Alaska or Hawaii
  • (There is also 6.25% tax on air freight – not the same as baggage fees )

Legal authority for the airlines to collect such taxes  and, also, to remit such taxes to the IRS, lapsed effective July 23, 2011.  Historically, such taxes had been periodically extended and not allowed to lapse.   The lapse was an unintended byproduct (an “innocent bystander”) of intense Congressional dispute over Federal subsidies of airlines serving low ridership smaller airports, and also over unionization of airline employees.

Congress reinstated the taxes retroactively by legislation on August 5th (HR 2553) but by then the IRS, not knowing what (if anything) Congress would do, had shut down its systems  to collect and process the taxes that the airlines would normally have remitted to the IRS.

The effect of the retroactive reviving of the taxes was that tickets that had been sold during the lapse period may have properly – but properly only at the time – not charged the Federal taxes; but once the taxes were retroactively revived it was not proper that the taxes not have been charged and not have been paid by passengers in purchasing the tickets.  Gotcha!  Or, more benignly, like “Alice In Wonderland”.

Before the retroactive reinstatement occurred, leading Republican and Democratic Senators and Congressmen on the Congressional tax writing committees wrote to the IRS requesting  that the IRS provide tax relief for passengers and airlines with respect to not collecting the taxes retroactively from passengers (and airlines) for tickets purchased  in the time period beginning July 23, 2011 through and including August 7, 2011 (thus allowing the IRS a three day period to restart its collection and processing systems).

Immediately upon Congress retroactively reviving the taxes, on August 5th, the IRS issued a statement to the public.  In it, the IRS first clarified that passengers who had purchased tickets (and paid the taxes) before July 23rd but who flew between July 23rd through and including August 5th would NOT be eligible for refunds of those taxes from the IRS.

Next, the IRS stated that it intended to provide tax relief for passengers and airlines and that it would announce guidance in the future.

Meanwhile, on July 23, 2011, after the taxes had expired but before Congress had acted, the IRS  issued  a set of Frequently Asked Questions addressing the expiration.  In it, the IRS hinted that if an airline had collected Federal  taxes that the airline was not required to remit to the IRS, then,  the passenger may look to the airline for a refund of the collected (but not remitted to the IRS) taxes.

(Therefore, it may be that passengers who have saved receipts that show payment of the taxes during the lapse may be able to seek refunds from their airlines.)

Now, on August 10th, the IRS has issued another set of Frequently Asked Questions.   In it the IRS states that it will not seek to retroactively tax passengers who purchased tickets between July 23rd and August 7th , where the airline did not charge the (retroactively reinstated) taxes.  Similarly, the IRS will not require the airlines to remit the retroactively reinstated taxes on such tickets.   Given the electronic and paper  trails that are produced when a passenger purchases a ticket, it would have been well within the IRS’ capability to determine which passengers were  – technically – retroactively liable for the taxes and to pursue them.   Also, during the lapse, it was estimated by Congressional and other sources that the uncollected taxes were costing the Federal government at least $27 million a day.  Thus, the relief to passengers (and airlines) provided by the IRS in its latest FAQ is not insignificant.   (The FAQ can be found on the IRS website,  , under the heading “Airline Ticket Taxes Reinstated”).

The August 10th FAQ states that during the lapse (including through August 7th) the airlines were not authorized to collect the taxes – and the FAQ  seems to ignore the possibility that some airlines may have charged the taxes, even if not “authorized” to.   Thus, the FAQ does not deal with those passengers (if, indeed, there are any) who may find themselves in the situation of having been charged for taxes that the IRS says they should not have been.

Perhaps, before issuing the FAQ, the IRS had surveyed all airlines operating in the US and had determined that no airline was charging the taxes during the lapse period.    However, if there are passengers in such a position – having purchased  tickets between July 23rd through and including August 7th and having been improperly charged by the airline for the taxes – the first IRS  FAQ  suggests that they may seek a refund from the airline.

(It’s possible that even though an airline did not charge for the taxes, nevertheless, the airline may have raised its ticket prices by the amount of the lapsed taxes.  What a passenger might do in such a circumstance is beyond the scope of this Alert.)

Dated: 8-10-11

This Update is intended only to provide generalized information.  It is not intended to provide information or advice with respect to specific situations.  To address real life, specific situations you should obtain appropriate professional assistance.

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