NetJets Beats $500 Million IRS Tax Claim

NetsJets didn’t get the refund that it hoped for though.

The private jet sharing company, NetJets, owned by Warren Buffett and Berkshire Hathaway, beat a lawsuit by the US IRS where they tried to recoup over $500 million in interest, penalties and unpaid taxes.

Edmund Sargus, a US District Judge in Columbus, OH, on Monday stated that the US Internal Revenue Service was bound guidance provided to a predecessor at the company in 1992 in regards to when it should collect federal transportation excise taxes, and was not allowed to retroactively impose more taxes.

The 37 page decision by the judge wasn’t a total NetJets victory. Sargus also rejected the NetJets claim that they were entitled to a $219.5 million refund, as well as the interest, on taxes that the company paid in the past because the services that it provided were not “taxable transportation.”

The NetJets specialty is “fractional” ownership of aircrafts. They let companies and individuals buy private jet shares. Berkshire Hathaway, based out of Omaha, Nebraska, purchased the company back in 1998.

This dispute came about due to a series of federal court and Internal Revenue Service decisions over the course of almost 20 years, on how and when NetJets, based out of Columbus, OH, should pay federal excise tax.

NetJets, in the past, only collected and remitted the taxes on “occupied hourly” fees that its customers paid. They are fees for per-hour flight plus fuel and other operating costs for the aircrafts.

Later, the Internal Revue Service stated the NetJets should have also collected taxes on management fees on a monthly basis. These fees include costs related to aircraft ownership including insurance and crew salaries, as well as “variable” surcharges that need to be imposed when prices for fuel become more than expected.

When making his decision, Judge Sargus stated that NetJets shouldn’t be penalized now because it relied “in good faith” on guidance provided by the IRS in 1992.

“No doubt the IRS may retroactively change an earlier interpretation of law, even when a taxpayer relied on that earlier interpretation to his detriment,” wrote Sargus. “But courts repeatedly have held that the IRS must follow its own procedural rules in doing so. And, the IRS did not.”

A spokesperson for the IRS was not available for comments on Tuesday.

In a NetJets statement, they said that they are happy with the $500 million IRS claim decision, and plan to review whether they need to appeal the tax refund portion.

According to Forbes magazine, Warren Buffett is the 3rd richest person in the world. He says that he has flown hundreds of times on NetJets flights.

The case is NetJets Large Aircraft Inc. v. U.S., U.S. District Court, Southern District of Ohio, No. 11-01023

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