Staying non commercial

[Topper]

Just wanted to get your thoughts on reimbursements of expenses. My partner and I own a plane, I am a pilot and he is not. We own real estate in several states, some he owns alone, some I own with him. We typically travel together to look at the out of town properties, his expertise is the leasing/tenant side and mine is the construction/maintenance side.

The properties are all owned by different entities, often with different ownership mixes, with my partner owning some percentage of everything. We have a separate checking account for the airplane. The easy thing is to set a fair rate for the plane to cover the cost of fuel/mx/engine and have each entity reimburse the airplane account. My fear is that this starts to look like a commercial operation.

We don't charge the entities for our time, that is just part of ownership. We could charge for our time, get reimbursed, then put the money back in the airplane account. Seems like a ridiculous amount of extra effort to accomplish the same thing.

Not sure who would ever know or care how we are doing it, but if there is a proper way to do it and keep big brother happy, I prefer to do it correctly.

Thanks,

Jim

 

[ClimbnSink]

Legal enough. Personally I would just keep my mouth shut to other local pilots about your arrangement and carry on. It is a free country.

 

[midlifeflyer]

Topper, if you're looking for a reliable opinion as a cost of doing business and not the mutterings of SGOTI (myself included), I'd suggest speaking to an aviation attorney and a tax advisor.

The FAA regulatory issue is complex given the Mangiamele opinion (no passengers permitted on reimbursed private pilot business flights) and there may also be IRS ramifications to the way the transaction is booked.

Given your business, should be worth some professional advice.

 

[Dean V]

Get a commercial certificate.

 

[weilke]

The properties are all owned by different entities, often with different ownership mixes, with my partner owning some percentage of everything. We have a separate checking account for the airplane.

So you have the plane registered as two individuals with both of your names on the registration or is it owned through an entity ?

The easy thing is to set a fair rate for the plane to cover the cost of fuel/mx/engine and have each entity reimburse the airplane account. My fear is that this starts to look like a commercial operation.

'commercial operation' as in:
- a flight operation that requires the PIC to hold a commercial certificate ?
- a 'flight department company' that provides 'transportation' and may fall under the provisions of part 119/135 ?
- a flight operation that may have tax consequences for either you or the other owner ?

We don't charge the entities for our time, that is just part of ownership. We could charge for our time, get reimbursed, then put the money back in the airplane account.

You dont want to charge for your time if you also provide the aircraft, that gets sticky in a hurry.

Not sure who would ever know or care how we are doing it, but if there is a proper way to do it and keep big brother happy, I prefer to do it correctly.

Right now you are using an airplane in furtherance of your business or employment and that is a-ok with a private ticket. If however you want to pay any less than all or at least your pro-rata share of the expenses for the flight, you'll have to stick to all the issues around the Mangiamele decision. Getting a commercial ticket and maintaining a second class medical may be what is required to stay clear of issues of 'are you getting paid to fly'.

 

[Bill Watson]

Legal enough. Personally I would just keep my mouth shut to other local pilots about your arrangement and carry on. It is a free country.

Since there's so much diversity of opinion by SGOTI (I never knew that one before, thanks), I'll throw mine in too.

Keep on with what your are doing if you trust your partner. Be quiet about it. Maintain whatever accounting you need to maintain between the two of you. Get your commercial (and IR if required) because it's just a good thing. Don't use it in this situation.

Bill "just SGOTI" Watson

 

[nosehair]

Get a commercial certificate.

Not at all a solution and even more of a legal problem with private business.

 

[midlifeflyer]

Not at all a solution and even more of a legal problem with private business.

It "might" be a solution (or at least part of a solution) given a willingness and ability to structure it properly. OTOH it could be more trouble than it's worth. But that's why professional advice is recommended.

 

[weilke]

Not at all a solution and even more of a legal problem with private business.

Depends on what the problem is.

If the problem is 'getting compensated to fly', then the commercial IS the answer.

What 'legal problem' would a commercial ticket create ? You still have all the privileges of a private as 'lesser included charge'.

 

[Topper]

Thanks for the replies, working on the IR and plan to get the commercial because it might help with this issue and I can't see any reason not to have it.

The plane is co-owned by two entities that are engaged other businesses. That may not have been the best option, but it was based on what our attorney recommended (they have some aviation experience). I don't mind spending the money on the right professionals, but these waters appear so muddy that I don't know if anyone can be 100% certain.

Jim

 

[ClimbnSink]

Depends on what the problem is.

If the problem is 'getting compensated to fly', then the commercial IS the answer.

What 'legal problem' would a commercial ticket create ? You still have all the privileges of a private as 'lesser included charge'.

If he is a commercial pilot and providing the plane he needs a 135 certificate, under the most restrictive interpretation. Best to stay a Private pilot and operate like it is a co owned car and they were driving around to do business. And not share details with any whiny puss nanny pilots.

 

[weilke]

If he is a commercial pilot and providing the plane he needs a 135 certificate, under the most restrictive interpretation.

Where in part 119 does it say that a private pilot engaging in carriage doesn't need an operating certificate ?

He does not provide 'plane + pilot'

As he says, the plane is co-owned by:

Topper and Billybobs real estate, llc (TaBRE,LLC)
and
BillyBob and Toppers investments, inc (BaTI,inc)

If the plane is used by TaBRE,LLC in furtherance of their business and is piloted by Topper, then TaBRE,LLC is the operator of the flight and Topper acts within his role as owner/manager of the company. If he has a commercial certificate, there is no issue of him receiving free flight time as compensation.

Here is what he needs to stay away from:

Lets assume he has a third entity 'Topper, Digger and Mudhole, LLP' (TDM,LLP) and he travels on behalf of that entity. That entity makes payments to TaBRE,LLC for the use of the aircraft. Now if Topper out of some tax considerations pays himself a salary for his piloting services out of TaBRE,LLC and the payment from TDM,LLP contains a component for his piloting services, TaBRE,LLC is arguably the operator of the flight and he has turned TaBRE,LLC into a 'flight department company'. By a strict reading of the regs, this could create a 119/135 conflict.

Best to stay a Private pilot and operate like it is a co owned car and they were driving around to do business. And not share details with any whiny puss nanny pilots.

Mh, no.

 

[poadeleted20]

Take what Mark (a real attorney) said as gospel. Ignore what Greg said (complete legal hogwash).

 

[ClimbnSink]

OK, you got me I ain't a lawyer. I'll write the chief counsel with the OPs facts and ask for clarification.

 

[JimNtexas]

OK, you got me I ain't a lawyer. I'll write the chief counsel with the OPs facts and ask for clarification.

Please don't do that! We can't stand the answer!!

If you must poke a stick into this nest, at least make a request to the Administrator for a formal rule making.

 

[ClimbnSink]

Please don't do that! We can't stand the answer!!
.

Yeah I wouldn't do that, I'm a dick but not that much of a dick.
Sad thing is the OP's situation is exactly what makes being a private pilot viable for people. Right out of an airplane advertisement(from the 1950's)That it might not be kosher anymore with a private certificate is a sign of the ga apocalypse.

 

[tmyers]

+1 to that, used to be that if you were a part a participating member of the business at hand on the trip and the business was incidental to aviation it was ok to be compensated for the aircraft with no pax limits. At least that is how it was explained to me by multiple CFI's, and I read the regs to still say that, crying shame the latest official reading still stands.

 

[midlifeflyer]

+1 to that, used to be that if you were a part a participating member of the business at hand on the trip and the business was incidental to aviation it was ok to be compensated for the aircraft with no pax limits. At least that is how it was explained to me by multiple CFI's, and I read the regs to still say that, crying shame the latest official reading still stands.

I don't think anyone likes Mangiamele and most everyone though the opposite. But the actual words of the reg are:

==============================
A private pilot may, for compensation or hire, act as pilot in command of an aircraft in connection with any business or employment if:
(1) The flight is only incidental to that business or employment; and
(2) The aircraft does not carry passengers or property for compensation or hire.
==============================

 

[poadeleted20]

Sad thing is the OP's situation is exactly what makes being a private pilot viable for people. Right out of an airplane advertisement(from the 1950's)That it might not be kosher anymore with a private certificate is a sign of the ga apocalypse.

Let me see if I understand this -- the fact that someone can't afford to be a private pilot without getting paid for flying people and property is a reason why the FAA should allow that?

Oy.

 

[poadeleted20]

I don't think anyone likes Mangiamele and most everyone though the opposite. But the actual words of the reg are:

==============================
A private pilot may, for compensation or hire, act as pilot in command of an aircraft in connection with any business or employment if:
(1) The flight is only incidental to that business or employment; and
(2) The aircraft does not carry passengers or property for compensation or hire.
==============================

IOW, it isn't legal, and it never was.

 

[ClimbnSink]

Let me see if I understand this -- the fact that someone can't afford to be a private pilot without getting paid for flying people and property is a reason why the FAA should allow that?

Oy.

It is his plane and in furtherance of his businesses. He should be able to do that with a private.

 

[nosehair]

So,..in the original post #1, how is a pax paying the pilot?
Maybe I missed it in a further post...?

I mean like in a 135 commercial operation where the pax is paying the operator for the specific service of air transport. How does the privately shared operation described in post #1 equate to a commercial 135 operation which requires commercial certification but also increased FAA oversight and protection of the public.

Just don't see their private operation as a fly for hire pilot.

 

[ChrisK]

Just don't see their private operation as a fly for hire pilot.

I am a W2 employee of a business I co-own. I tell my creditors I'm not self-employed.

This is a sticky wicket.

 

[gismo]

IOW, it isn't legal, and it never was.

I don't see how bringing a business partner along on a trip can be considered "carrying passengers or property for compensation or hire". There's no compensation from the partner, no quid pro quo, just a business footing the bill for the use of the airplane. If the pilot/partner was there just to provide transportation I could see but in this case they both need to travel.

I realize that Mangiamele says otherwise and is the "official" position but I don't agree that "it never was".

And JOOC since "property" is mentioned in the exact same context as "passenger" it seems the Mangiamele opinion means that you can't have your business pay for the flight if you carry anything with you. So don't wear any clothes, don't bring your wallet, heck you technically can't go at all because you can't carry the property item that's your pilot certificate.

 

[tmyers]

Guess it depends on the legal definition of compensation and reimbursement. If the reason for the flight is to move the pax from point a to point b it is without argument a commercial flight. If the pilot and the pax are both part and parcel to the trip I don't see that reimbursement is the same as compensation. The reimbursement is the same whether I fly alone or with a pax so how am I being compensated for taking the pax along.

Of course that is simply my opinion and is definitely not the opinion of the FAA at this point in time, so I never take a pax with me on a reimbursed trip, and they don't understand my explanation.

Siri says that compensation is something (such as money) given or received as PAYMENT or reparation

 

[poadeleted20]

So,..in the original post #1, how is a pax paying the pilot?
Maybe I missed it in a further post...?

I mean like in a 135 commercial operation where the pax is paying the operator for the specific service of air transport. How does the privately shared operation described in post #1 equate to a commercial 135 operation which requires commercial certification but also increased FAA oversight and protection of the public.

Just don't see their private operation as a fly for hire pilot.

There are two separate issues here.

First, if a passenger is paying for air transport (or a shipper is paying for transport of property), that is generally air transportation for hire/compensation, and requires that the provider of the transportation hold a commercial operating certificate under Part 121 or 135.

However, even when the air transportation is not being paid for by a third party, there is also the issue of whether or not the pilot is being compensated for piloting. Outside the exceptions specifically listed in 61.113 (as interpreted by the FAA Chief Counsel), a Private Pilot is not permitted to receive any compensation (monetary or otherwise, including free or cut-rate flying) for flying a plane. This is where the "flying on business" schemes usually fall afoul of the law, and where the scheme in the original post might be considered a violation by the FAA. Read the Mangiamele interpretation linked above for more discussion on this point.

 

[poadeleted20]

I don't see how bringing a business partner along on a trip can be considered "carrying passengers or property for compensation or hire". There's no compensation from the partner, no quid pro quo, just a business footing the bill for the use of the airplane. If the pilot/partner was there just to provide transportation I could see but in this case they both need to travel.

I realize that Mangiamele says otherwise and is the "official" position but I don't agree that "it never was".

Absent a decision from the US Court of Appeals to the contrary, the FAR's say what Chief Counsel says they mean. Since that section wasn't reworded at the time of Mangiamele, legally, that section has always meant what the Chief Counsel said it did in that interpretation whether anyone realized it or not.

I've said before that I think Mangiamele is bogus, so don't shoot the messenger, but under the law, that's the way it is and that's the way it always was.

 

[poadeleted20]

Guess it depends on the legal definition of compensation and reimbursement. If the reason for the flight is to move the pax from point a to point b it is without argument a commercial flight. If the pilot and the pax are both part and parcel to the trip I don't see that reimbursement is the same as compensation. The reimbursement is the same whether I fly alone or with a pax so how am I being compensated for taking the pax along.

Of course that is simply my opinion and is definitely not the opinion of the FAA at this point in time, so I never take a pax with me on a reimbursed trip, and they don't understand my explanation.

Siri says that compensation is something (such as money) given or received as PAYMENT or reparation

I agree with your arguments, and there are those including AOPA who are attempting to have this issue revisited by the FAA. However, until that happens, Mangiamele is the law.

 

[tmyers]

+1 on the law being the law

 

[DrMack]

Depends on what the problem is.

If the problem is 'getting compensated to fly', then the commercial IS the answer.

What 'legal problem' would a commercial ticket create ? You still have all the privileges of a private as 'lesser included charge'.

There are two dimensions to the notion of "commercial": one is the pilot and the other is the operation. A commercial pilot's license allows the pilot to be paid to fly. But the operation must also be certificated (14 CFR Part 119) if there is any compensation involved.

 

[DrMack]

It is his plane and in furtherance of his businesses. He should be able to do that with a private.

The FAA says otherwise, the courts agree and we are thereby denied the right to use our private property for private benefit. That is why I have championed the cause to remedy this abusive regulatory tyranny with a legislative initiative that we have named "Restoring the Freedom to Fly for Private Benefit Act of 2013". Anyone who would like to know more is free to contact me and I will happily reply with the draft bills (one for the Senate and one for the House), plus a white paper that spells out the motivation: tmcdonough@smu.edu

 

[Cmercado]

Guys,

The NBAA was granted an exception to the compensation FARs (NBAA exception 7897). It allows certain private flights for compensation without a 135 certificate (private carriage).

Anybody with experience on the subject?

 

[weilke]

There are two dimensions to the notion of "commercial": one is the pilot and the other is the operation. A commercial pilot's license allows the pilot to be paid to fly. But the operation must also be certificated (14 CFR Part 119) if there is any compensation involved.

If you noticed, my initial post in this thread addressed that distinction.

Compensation to the pilot does not require a part 119/135 certificate, neither does compensation to the entity that owns the aircraft. The only time an operating certificate comes into play is when:

- one entity provides the plane and the piloting service (=wet lease=private carrriage)

- someone on board of the plane is not an employee of the company that operates the aircraft AND pays for part of the expenses. Here is a scenario: company A and company B are independent entities but friendly to each other (steel building contractor and roofing company). Both go to a trade show using company As plane flown by company As pilot. If company B pays company A for transporting company Bs sales rep to the trade show, company A has now provided 'private carriage'. Now, if company A doesn't charge, well, some nitpicky entry level FAA employee could still decide that the 'expectation of future business' that company A has from helping out company B represents 'goodwill' and is as such compensation. In reality I dont believe that this is an issue as companies do things like flying prospective clients to site visits all the time with the express intent of that generating future business. As long as the customer is not charged for the flight, the FAA has not made this an issue. The case about 'goodwill' was about a noncertificated charter operator trying to induce a county goverment into entering into a management contract with him, not about a non-aviation business hauling customers or business associates.

 

[midlifeflyer]

Guys,

The NBAA was granted an exception to the compensation FARs (NBAA exception 7897). It allows certain private flights for compensation without a 135 certificate (private carriage).

Anybody with experience on the subject?

The NBAA Exemption specifically states it "does not authorize the conduct of any operation required to be conducted under the rules of 14 CFR part 135." (my emphasis) It actually sort of does in a non-technical sense in that it takes some activities out of the Part 119 analysis.

If you take a look at 91.501(b), you'll see that operators of Par1 91 Subpart F aircraft (Large and Turbine-Powered Multiengine Airplanes and Fractional Ownership Program Aircraft) are allowed certain activities. Some are run-of the mill Part 91 activities but some are the type that are being talked about in this thread. You can read the list in the reg but, for a relevant example, a SubPart F operator is permitted to:

==============================
Carriage of officials, employees, guests, and property of a company on an airplane operated by that company, or the parent or a subsidiary of the company or a subsidiary of the parent, when the carriage is within the scope of, and incidental to, the business of the company (other than transportation by air) and no charge, assessment or fee is made for the carriage in excess of the cost of owning, operating, and maintaining the airplane, except that no charge of any kind may be made for the carriage of a guest of a company, when the carriage is not within the scope of, and incidental to, the business of that company;
==============================

That's the type of transportation 61.113 as interpreted by Mangiamele prohibits. Note in particular the "charge or fee" language as opposed to the more general "compensation or hire" language of 61.113.

What the NBAA Exemption does (in part) is allow non-Subpart F aircraft operated by NBAA members to perform 91.501(b)(1) through (7) and (9) operations in light, non-fractional aircraft. Relevant to this thread, it allows them the greater leeway allowed by SubPart F compared with 91.113 with respect to the transportation of clients and business guests.

Of course, there's a price in terms of greater regulation on related aspects. You don't get to take advantage of the greater leeway afforded SubPart F aircraft without also take in some of the greater regulatory burdens of those operations.

 

[wabower]

Do the co-owners operate the plane in accordance with a Joint Operating Agreement? If so, is each co-owner paying an equal or equitable share of all own-op expenses? If so, are those expenses an auxiliary function of the businesses that own the plane? Are the trips flown for the furtherance of the business of the companies that own the plane?

Thanks for the replies, working on the IR and plan to get the commercial because it might help with this issue and I can't see any reason not to have it.

The plane is co-owned by two entities that are engaged other businesses. That may not have been the best option, but it was based on what our attorney recommended (they have some aviation experience). I don't mind spending the money on the right professionals, but these waters appear so muddy that I don't know if anyone can be 100% certain.

Jim