IRS Says Air Travelers May Get Refund on Ticket Taxes

By Michael Cohn, Accounting Today

The Internal Revenue Service said that some travelers may be entitled to refunds on the ticket taxes that airlines have been charging after Congress failed to pass a reauthorization bill last Friday for the Federal Aviation Administration.

Despite the lapse of the ticket taxes, many airlines have quietly raised their fares and are pocketing the money they would have otherwise turned over to the federal government to fund the FAA and various airport and air traffic control projects. The move has outraged many passengers and some senators are asking the airlines to keep the funds in escrow until they can be turned over to the FAA (see Senators Tell Airlines to Stop Pocketing Ticket Taxes). In a frequently asked questions page posted on its Web site Tuesday and updated Wednesday, the IRS provided information on what passengers should do about the taxes.

The IRS said that “airlines are not authorized to collect the tax during any period in which it does not apply.” However, that left open the matter of whether airlines could raise their fares by a comparable amount.

On the question of whether a passenger who purchases a ticket at a time when the tax is not in effect but travels after the tax is reinstated would be subject to tax, the IRS responded that it depends on how such travel is treated in any legislation reinstating the tax. “The legislation could either impose tax on all travel occurring after its enactment or provide an exemption for passengers who purchased tickets during the period when the tax was not in effect,” said the IRS.

In some cases, though, airlines may need to refund the taxes to passengers.

“Passengers who paid for tickets on or before July 22, 2011, for travel beginning on or after July 23, 2011, may be entitled to a refund of the tax,” said the IRS. ”Airlines are permitted to refund the tax to the passenger, just as they do in the ordinary course of business when issuing refunds for unused refundable tickets (including the associated taxes). Because the airlines and travel service providers already have the information about passenger ticket purchases and travel, and in many cases have payment card information that may facilitate streamlined refunds, the IRS has asked the airlines to provide refunds to eligible passengers when requested. However, passengers who are unable to obtain a refund from the airline may obtain a refund by submitting a claim to the IRS. Because the IRS has no information about passenger ticket purchases or travel dates, travelers who are unable to obtain a refund from the airline will be required to submit proof of taxes paid and travel dates to the IRS under procedures that are under development. The IRS will provide additional guidance at a later date.


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