## Facts

- NetJets Large Aircraft, Inc. and related entities provided aircraft management and aviation support services to customers who owned or leased whole aircraft or fractional interests.
- Customers paid three main categories of charges: (1) “occupied hourly” fees tied to actual flight time; (2) fixed monthly management fees covering items such as insurance and labor; and (3) variable fuel surcharges triggered when fuel prices rose above a stated baseline.
- Section 4261 of the Internal Revenue Code imposes an excise tax on “amounts paid” for taxable air transportation (often called the ticket tax).
- In 1992, the IRS issued a Technical Advice Memorandum (TAM) addressing a materially similar aircraft management arrangement; the TAM stated that § 4261 applied to the occupied hourly fees, not to monthly management fees or fuel surcharges.
- NetJets relied on the 1992 TAM and, during the periods at issue, collected and paid § 4261 tax on occupied hourly fees but not on monthly management fees or fuel surcharges.
- Years later, the IRS assessed excise-tax deficiencies against NetJets, taking the position that monthly management fees and fuel surcharges also were taxable under § 4261; the IRS had not revoked or formally changed the 1992 TAM during the relevant time.
- NetJets filed a refund and abatement action under 26 U.S.C. § 7422 challenging the assessments; the parties filed cross-motions for summary judgment. Some claims involved a related company, Executive Jet Management, Inc. (EJM), whose service arrangements raised additional factual questions.

## Issues

1. Whether the IRS could retroactively assess § 4261 excise tax on NetJets’ monthly management fees and fuel surcharges after a 1992 TAM (never revoked during the relevant period) stated that only occupied hourly fees were subject to the tax.
2. Whether, in light of the IRS’s internal procedures and the unrevoked TAM, NetJets was entitled to rely on the 1992 guidance in determining what amounts were subject to § 4261.
3. Whether the summary-judgment record resolved the dispute for all plaintiffs and fee components, or whether certain claims (including EJM-related claims) required further proceedings.

## Decision

- The court granted summary judgment to NetJets on its central challenge to the IRS’s retroactive assessments of § 4261 tax on monthly management fees and fuel surcharges.
- The court held that the IRS could not retroactively expand the tax base to reach those fees where the 1992 TAM limited the tax to occupied hourly fees and the IRS had not properly modified or revoked that guidance during the period at issue.
- The court found the record showed NetJets acted in good faith reliance on the 1992 TAM in reporting and paying the ticket tax.
- The court denied the government’s contrary summary-judgment request to impose retroactive § 4261 liability on the monthly management fees and fuel surcharges for NetJets.
- The ruling did not fully dispose of all matters for all related entities; claims involving EJM and related discovery issues remained for further handling.

## Legal Principles

- Section 4261 imposes an excise tax on amounts paid for taxable air transportation; whether particular charges fall within the tax can turn on IRS guidance and the government’s own administrative steps in changing positions.
- Although a Technical Advice Memorandum generally is not binding precedent for all taxpayers, an unrevoked TAM may support a taxpayer’s claim of reasonable reliance and can matter when the IRS seeks to apply a changed interpretation retroactively.
- When the IRS changes course from prior written guidance, it must follow its own established procedures; failure to do so can bar retroactive enforcement against taxpayers who relied on the earlier guidance.
- Principles of fair notice limit retroactive imposition of tax-collection liability where the agency previously communicated a narrower tax application and did not timely and properly announce a change.

## Conclusion

NetJets prevailed on summary judgment because the district court concluded the IRS could not retroactively assess § 4261 excise tax on NetJets’ monthly management fees and fuel surcharges where a 1992 TAM—never properly withdrawn during the relevant period—limited the ticket tax to occupied hourly fees and NetJets reasonably relied on that guidance, though some related-entity issues remained for later proceedings.


NetJets Large Aircraft, Inc. v. U.S., 80 F. Supp. 3d 743 (2015)