In the past life was a whole lot simpler – entities either owned or chartered their aircraft.
Whereas today, there are numerous options for operating your aircraft, ranging from
leasing, chartering, full ownership or the many ways to share aircraft ownership. The
primary drivers behind these alternative arrangements are the acquisition costs, operating
costs, and the legal and tax considerations. This article will focus on the shared aircraft
ownership options and how are they the same and how they differ.

Joint Ownership
First and easiest to describe is “joint ownership”. Joint ownership is defined under FAR
Part 91.501(c)(3) 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.” The FAA has not
established a minimum percentage of ownership, however, the relationship must be a true
joint ownership and not just a token ownership interest. (FAA Chief Counsel Opinion
10/2/89)

The IRS, on the other hand has determined through various Letter Rulings (Private Letter
Rulings 8052082 and 8148032) that a joint ownership agreement, if executed correctly, is
noncommercial for tax purposes. This is based on the fact that each of the co-tenants, or
registered joint owners, pay their pro rata share of all fixed costs (i.e., hangar rental,
property taxes, insurance, debt service, maintenance and depreciation) attributable to the
aircraft and each also pay the direct operating costs (fuel expenses, landing fees and pilot
expenses) when they are on board their aircraft.
In addition, each of the co-tenants maintains considerable control over the pilots. This
includes the ability to hire a pilot, other than the ones employed by a joint owner. Also,
pilots are under the co-tenant’s exclusive control, subject to the discretion of the pilots as
to safety issues.

Under this arrangement, the IRS has determined that the amounts paid by the co-tenants
for costs associated with the use of their aircraft will not be considered amounts paid for
the use of someone else’s aircraft. Rather, their payments cover the costs of operating
their own aircraft, of which they have possession and use.

Co-Ownership
Co-ownership is very similar to joint ownership whereby each of the owners is a
registered owner of an aircraft, however, instead of one of the owners operating the
aircraft for all of the owners, each of the owners is responsible for employing their own
pilots.

Usually in the case of co-ownership the respective owners will independently either fly
the aircraft themselves, hire a pilot or hire a management company to not only pilot the
aircraft but also maintain the aircraft.

Fractional Ownership
Fractional ownership is a relatively newer concept where registered co-owners of an
aircraft employ a management company to manage the aircraft and allow the
management company to dry lease exchange the aircraft among their fleet of aircraft.
When owners purchase an interest in an aircraft it guarantees the owner a set number of
hours of flight time per year based on the ownership interest. Under this arrangement, the
management company establishes the suitability requirements for the pilots and, in most
instances, supplies pilots and pays their salaries. The owner can provide his or her own
pilots, however, with 24-hours notice.

If an aircraft in which an owner has an interest is not available for the owner's use at a
particular time, under the dry lease exchange agreement, the management company will
provide another aircraft from the program. Under the management agreement, if there are
no program aircraft available, the management company will provide an aircraft from its
charter fleet.

Under these circumstances, even though the owners are the title-holders of the aircraft,
the IRS has determined that the owners have relinquished possession, command and
control of their respective aircraft to the management company that provides the air
transportation.

Given the totality of the circumstances, the IRS has determined that the management
company is providing taxable transportation of persons and the commercial Federal
Excise Tax is due on the direct operating costs. (EJA vs United States, 9/18/97).
Joint Ownership and Co-Ownership when executed correctly are Part 91 operations.
Fractional Ownership has been operating under Part 91 for many years, however, at this
time there is a rule making effort to create a new subpart under Part 91 to cover
Fractional Ownership. So when talking about any of the shared aircraft ownership
options it is in everyone’s best interest to understand how they differ and which one you
or your client are truly interested in as it will impact the application of Federal and state
taxes on the aircraft and how the FAA looks at the operation.