FAA Tax Fiasco: Does the Government Owe You Money? IRS Says NO!

Mon Aug 8, 2011 by on Florida Law News

On July 23, the law allowing the FAA to collect aviation taxes expired due to stubbornness between the houses of Congress. The expiration cost the government between $25 and $30 million dollars a day in lost revenue and 4,000 FAA workers were furloughed until the impasse was resolved Friday.

Or so we thought.

On Friday following the announcement of the new law, the IRS immediately posted the following statement:

“Today’s Congressional action extended the Federal Aviation Administration’s authorization reinstates retroactively the airline ticket taxes for passengers who traveled during the lapse of the FAA’s authorization. As a result of the bill Congress passed today, passengers who purchased tickets prior to July 23 and traveled between July 23 and the date of enactment of today’s legislation are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse. The IRS is currently reviewing other effects of the legislation and will issue future guidance.”

Were it not for the retroactive application of the law reached by agreement of the Senate on Friday, the partial shutdown of the FAA would have cost the government over $400 million dollars. This is money that the country desperately needs. Given the worry over the deficit and the economic health of the country, this quick save could have helped Congress patch up its image in the wake of negotiations regarding raising the debt-ceiling.

But, despite these last-minute efforts, Congress has still managed to fall flat on its face.

After their Hail Mary play, Congress did an about-face typical of the American government: a letter was sent to the IRS by Congressional leaders suggesting it worry about collecting future ticket taxes rather going after the retroactive ones due to the IRS’s limited resources.

The real question is: did Congress consider that the IRS might have MORE resources if they actually went after some of these accounts that they should be collecting on?

This “gift” to the airlines comes as a bit of a slap in the face to the American people. It’s especially disturbing when you consider that instead of passing on the savings to consumers, almost all of the major airlines raised fares during the time when taxation was uncertain. They have been able to pocket the difference without repercussion.

The end result is increased revenue for the airlines of nearly $400 million dollars. This money should have stayed in the pockets of the American people, or be collected by the IRS.

At Oppenheim Law, we think that the IRS should go after these taxes since the only economy that is stimulated by this kind of ineptitude is helping big business. Instead, the little guy continues to pay the price.