IRS Chief Counsel: Excise tax and prepaid air travel cards

Excise tax and prepaid air travel cards

The Office of the IRS Chief Counsel released an advice memorandum*—program manager technical assistance (PMTA)—addressing whether or when the federal excise tax under section 4261 applies for prepaid gift cards redeemable for travel on commercial airlines or for “jet cards” offering a fixed price for flying time on aircraft. PMTA-2015-01 (March 11, 2015)

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PMTA-2015-01 [PDF 114 KB] concludes that:

  • Amounts paid for a prepaid gift card that is redeemable only for air travel on a commercial airline is not subject to the excise tax under section 4261 at the time of purchase because the card does not allow the bearer to board an airplane, and can only be used to purchase a ticket. The tax, however, is imposed when the gift card is used to purchase taxable transportation from the airline. The airline must collect the tax at that time.
  • Amounts paid for prepaid flying programs, when fixed hours are sold for a fixed price by sellers for charter air transportation operated by a third party—a “jet card”—are subject to excise tax under section 4261 at the time of purchase of the jet card because the jet card is essentially a ticket substitute and entitles the card holder to get on a flight.

*Legal advice memos, issued to program managers, are signed by attorneys in the National Office of the Office of Chief Counsel and issued to IRS personnel who are national program executives and managers. The memos are issued to assist IRS personnel in administering their programs by providing authoritative legal opinions on certain matters, such as industry-wide issues. The memos cannot be used or cited as precedent.

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