Lawmakers Encourage IRS to Forgo Retroactive Airline Taxes

Friday, 05 Aug 2011 11:28 AM

(Updates with details on FAA shutdown starting in fifth paragraph.)

Aug. 5 (Bloomberg) -- The four top tax legislators in Congress are asking the Internal Revenue Service not to retroactively collect airline taxes on flight tickets purchased during the recent lapse in the Federal Aviation Administration’s taxing authority.

“We encourage you to utilize all your discretion and authority to extend relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse and provide the industry a three-day period of time to restart processes to collect the taxes,” according to the letter, dated yesterday.

It was written by the top two members of the Senate Finance Committee, Democrat Max Baucus of Montana and Republican Orrin Hatch of Utah, and the top two members of the House Ways and Means Committee, Republican Dave Camp and Democrat Sander Levin, both of Michigan.

The IRS didn’t respond immediately today to a request for comment about how it would handle retroactive taxes for tickets purchased after July 22.

The FAA’s authority to levy the 7.5 percent tax on airline tickets, as well as other aviation taxes, lapsed July 22. After that, most airlines raised their fares by the amount of the taxes without charging the taxes. Had Congress not acted, the total forgone taxes would have reached an estimated $1.3 billion by Sept. 7.

Retroactive Taxes

The Senate voted today to end the shutdown, and President Barack Obama is expected to sign the bill into law. The text of the bill passed by the House July 20 reinstates the taxes as of July 23. Enactment was delayed because of disagreements between the House and the Senate.

In the letter, the tax-writing lawmakers told IRS Commissioner Douglas Shulman that they are concerned about the effect that retroactive taxes would have on consumers and the airline industry.

“Furthermore, we understand that the IRS has limited resources -- some of which will be required to restart systems and processes to begin collecting these taxes again going forward -- and that the retroactive collection of trust fund taxes would add further strain to those resources,” they wrote.

--Editors: Jodi Schneider, Leslie Hoffecker

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Lisa Caruso in Washington at lcaruso7@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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