Page 31 - Twin & Turbine May 2017

2. Part 91.501 Joint Ownership
Many years ago the FAA adopted FAR 91.501, in part, to allow increased aircraft utilization by expanding the kinds of operations allowed under Part 91. One of the operations allowed is a “joint ownership arrangement,” defined as “an arrangement whereby one of the registered joint owners of an airplane employs and furnishes the flight crew for that airplane and each of the registered joint owners pays a share of the charge specified in the agreement.” This was apparently intended to allow an aircraft operator who employs a flight crew to sell a portion of his aircraft and to avoid the need for a complicated arrangement to share a flight crew.
Furthermore, according to the preamble to FAR 91.501, “It will be presumed that the joint owner employing and furnishing the flight crew is the operator of the airplane” and that “\[u\] nless otherwise agreed to by the owners, he is responsible for compliance with the safety regulations applicable to that flight.”
The FAA recognizes that, because of these advantages, an aircraft owner might be tempted to create a charter operation by selling token interests. For this reason, the FAA amended the regulations to require the owners to be “registered” joint owners. The FAA also requires that the ownership percentage bear a reasonable relationship to actual use.
One disadvantage of a FAR 91.501 joint ownership arrangement is that the definition apparently precludes the
owners from leasing their interests to related parties or others. This effectively prevents joint owners from using a leasing company arrangement.
3. Leasing Company
In a leasing company arrangement, the operators create a jointly-owned leasing company that purchases the aircraft and leases the aircraft to the operators and others. This arrangement arguably provides the owner with additional protection from liability on flights taken by other joint owners. There are also various tax benefits to putting an aircraft in a leasing company, such as the ability to pay sales tax on lease payments rather than the purchase price.
One downside is an IRS tendency to argue that any leasing company is subject to the hobby loss and/or passive loss rules even where the aircraft is used exclusively in an active trade or business. To avoid this problem, some joint owners utilize a multiple leasing company arrangement where the joint owners have their business entities each form a single member LLC leasing subsidiary that jointly purchase the aircraft and lease the aircraft to the business entities. For income tax purposes, the LLCs are disregarded and the business entities are treated as the owners of an aircraft, rather than a leasing company. However, the sales benefits are preserved because the states generally do not disregard the LLCs for sales tax purposes.
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