Plane purchases, gifts, and the tax man

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traumamed

Filing Flight Plan
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traumamed
First, I realize this is a question for a tax attorney if the rubber were really going to hit the runway on something like this. I'm not looking for legal advice. I just thought this might be a fun exercise to post up here to see if anyone else has ever thought of (or tried) this, or heard of someone who did, and had any juicy stories.

Let's say that hypothetically, two non-spouse relatives who reside in Florida - we'll call them JimBob and Cleetus - are thinking that it would be cool to have a plane around. JimBob finds the perfect plane for sale that checks all the boxes. This plane, conveniently, is registered in Delaware and physically located within a < 1-hour flight from Delaware. JimBob and Cleetus trust each other implicitly and have shared big-ticket items together before with only one person's name on the title/registration. Call it an informal way to pool resources to have more toys.

JimBob goes up to buy the plane. The deal is consummated in Delaware, so no sales tax. An 8050-2 is completed and filed, with JimBob listed as the proud new owner. The next day, and before flying the plane physically into Florida, JimBob comes to his senses. He decides Cleetus is probably going to fly way more than he is, and therefore, for liability purposes, he would he would rather have Cleetus' name be on the registration instead of his own. He gifts the plane to Cleetus on a new 8050-2. Since the 8050-2 requires a purchase price, $1 is listed. The plane is flown into Florida, Cleetus files all requisite paperwork with the state that the plane was received as a gift, and pays his $0.06 use tax (6% of $1). JimBob files a Form 709 (gift tax return) with the IRS on his 2024 federal tax return and claims the purchase price against his lifetime gift tax exclusion.

Okay, go. Lol. Are JimBob and Cleetus hardened white collar criminals, deadbeats who hate the United States and their home state? Or by virtue of one of them taking the risk of not being a legal owner, did they just happen to exploit a legal loophole? Is this essentially transferring what would have been a state tax burden (use tax) into a federal tax burden (gift tax) and then applying the advantageous rules that apply there?
 
I don't know how Florida works with airplanes. But if you try the same thing in NY with a vehicle, if the DMV determines that the purchase price you are claiming is not the value they will charge you sales tax based on the value.
 
dcat127 said:
I don't know how Florida works with airplanes. But if you try the same thing in NY with a vehicle, if the DMV determines that the purchase price you are claiming is not the value they will charge you sales tax based on the value.
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Florida used to have a gift tax a long time ago, but it was repealed sometime in the mid-aughts. There is no value-based taxation or registration fee on personal property in Florida, only real estate. Sales/use tax is a one-time deal, and based on actual transaction price only. A weird quirk with regard to boats is that outboard motor sales are not taxed. People use that to their advantage all the time by buying, say, "3 outboards" for $150,000 and a "boat hull" for $10,000. Lol.
 
In Connecticut you need to either prove the value of the airplane or they will determine it for you. A bill of sale for $1 would not be accepted as evidence of value. People tried that for years with cars too so the DMV just switched to the blue book value regardless of what it says on the bill of sale or what kind of condition the car is in.
 
Vermont emphasizes that it's a sales and use tax, so if you live in Vermont but bought it in another state, you owe whatever you didn't pay in the state where you purchased it.

Years ago nearby Maine tried to impose the use tax on aircraft that spent more than something like a week parked in the state with the same thing. It was quickly repealed when they realized that it would keep the wealthy from flying into the state and result in a net loss of revenue.

I don't think either state cares whether it's a gift or a purchase. If you own it, it was a transfer and that's what gets taxed.
 
Not sure how it works in Florida, however my experience with the Florida tax people is that they are not very user friendly, and if they can find a way to separate you from your hard earned or even easy earned money they will. When I purchased my present plane, I received a notice about a year later stating I never paid the tax when I purchased the plane. Considering I had paperwork showing I did I thought it would be easy to prove them wrong. Sent them said paperwork and received a letter back saying it was not good enough because their records did not agree. It took almost 6 months of back-and-forth messages, phone calls, and letters between myself, the tax people, my accountant, and the company that brokered the sale until Florida realized their mistake and credited me for the tax I had already paid. Thankfully, unlike the IRS (yet another story) they did reverse the fines and interest accumulated because of their mistake. The cost to fix their mistake however were not reimbursed.
 
Depends on state. No sales/use tax when direct relatives gift/buy from another in Michigan. Didn't even charge when moving from personal to LLC under certain provisions. Sibling-parent-child are exempt. grandparents *might* also be. Uncle/aunt relationship would require two transfers. Cousins 3.
 
Jimbo is too impatient. Florida has a 6-month exemption, so if Jimbo waits more than 6 months to move the plane to Florida he will owe no use tax. A little patience will avoid trying to sneak around the tax laws and risking a bust.
 
It's JimBob, get it right! :fingerwag: And you are correct, JimBob is an impatient man. He and Cleetus were excited about not having to drive 4+ hours to get to the plane for the next six months.

Although not previously mentioned in this thread, the six month strategy is something JimBob and Cleetus were also hypothetically considering, seeing as it would save (one of) them five figures. JimBob may have even taken advantage of that loophole on a prior occasion.
 
If Jimbo and Cletus are sharing the plane, does that mean Cletus paid half the purchase price? If so, then Jimbo can only gift him the other half at most. But if Jim is actually retaining ownership, then it's not a bonafide gift.
 
They will get what they believe is coming to them. I had a homebuilt plane a few years ago. I received a tax bill for a plane worth nearly 50k. I went to explain that what they were seeing on the kit builder's site and what I actually had were vastly differen't. They conceded and gave me a break on the amount.

Still, I agree with George:

 
Lindberg said:
If Jimbo and Cletus are sharing the plane, does that mean Cletus paid half the purchase price? If so, then Jimbo can only gift him the other half at most. But if Jim is actually retaining ownership, then it's not a bonafide gift.
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Ahh, funding source and ownership intent.

JimBob is using 100% his own funds for the purchase, but had intended to let Cleetus have full and free use of the plane bc Cleetus had extended him the same courtesy with his boat. JimBob realizes and accepts that by gifting the plane to Cleetus, he loses all ownership control of the plane. He expects that Cleetus will continue to allow him to use the plane freely, and will take his advice on maintenance/repairs/upgrades. However, he is willing to accept the risk that Cleetus could suddenly become a jerk and not let him use the plane, or that Cleetus could die and his wife could sell the plane and keep all the money for herself (less her capital gains tax, of course).
 
traumamed said:
Ahh, funding source and ownership intent.

JimBob is using 100% his own funds for the purchase, but had intended to let Cleetus have full and free use of the plane bc Cleetus had extended him the same courtesy with his boat. JimBob realizes and accepts that by gifting the plane to Cleetus, he loses all ownership control of the plane. He expects that Cleetus will continue to allow him to use the plane freely, and will take his advice on maintenance/repairs/upgrades. However, he is willing to accept the risk that Cleetus could suddenly become a jerk and not let him use the plane, or that Cleetus could die and his wife could sell the plane and keep all the money for herself (less her capital gains tax, of course).
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Then you haven't found a "loophole," you're just complying with the law. :dunno:
 
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