Thoughts on 14 CFR 61.113(c)

AV8R_87

AV8R_87

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A private pilot may not pay less than the pro rata share of the operating expenses of a flight with passengers, provided the expenses involve only fuel, oil, airport expenditures, or rental fees.

If I rent a plane, the per hour rate includes insurance, engine reserve, depreciation, and a bit of a profit margin for the flight school. All of which can be split with the passengers.
But the owner is only limited to fuel, oil and airport fees. While some of the ownership expenses are slightly less defined, they're still quite quantifiable on a per hour basis.

If insurance is $1200/yr and the plane flies 4 hrs/month, that's $25/hr for insurance. The hangar cost (hey, shouldn't that be included under airport expenditures?) adds $100/hr for a plane that flies 4 hrs/mo. The engine is even better defined, a 50k overhaul adds up to $25/hr.

Yet if I take a friend for a 1hr flight, the FAA says all he can legally pay for is half of the fuel cost. 8gph @$5/gal, he's capped at $20. That flight had a real-life cost of $190. Even if you double the flown hours per month, it will still add up to $130/hr.

Yes, I know that rule is in place mostly to stop 134.5 operations. But still, I get quite the incredulous look when people offer to chip in for a flight and I tell them the max they can pay is $20.
Should we tell the FAA to wake up and realize it takes more than fuel and oil to fly an airplane?
 
AV8R_87 said:
Should we tell the FAA to wake up and realize it takes more than fuel and oil to fly an airplane?
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Go ahead.

I suspect the reason is verification. With a rental, you are paying a cost that someone else created. You are immediately out of pocket. With your own, you can just make up a number that's not really "out of pocket." Enforcement becomes more difficult, unless you really want the FAA to audit your expenses if they smell a problem. Yeah, there are potentially holes in that from a practical standpoint, but that's my WAG.
 
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I agree with midlifeflyer. Yes, there's a dichotomy between the rental rate and the direct costs, but it's not designed to be fair to the aircraft owner. They don't want the pilot doing an ersatz rental/charter business here.

The interesting thing would be if this were a leaseback situation and the pilot happened to also be the lessor. He could bill the rental rate portioned to the passenger rather than the fuel/oil costs.
 
How often does the faa come after people for using the wrong percentage when doing prorata sharing?
 
dcat127 said:
How often does the faa come after people for using the wrong percentage when doing prorata sharing?
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If the question is "will I get caught" as opposed to "is this what the rules require?" probably not often. It would take an incident that causes the FAA to investigate and a passenger who mentions a price that just sounds wrong.

Since ignorance is not a defense anyway, it's probably best to try to understand a rule before deciding it's ok to break it.
 
midlifeflyer said:
Go ahead.
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This is why I started the conversation.
I do meet with FAA people on a regular basis and like bringing up slightly controversial topics. At the same time, I don't want to be "that guy" that asks for clarification on what constitutes "A&P supervision" and ruin it for everyone.

midlifeflyer said:
I suspect the reason is verification
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midlifeflyer said:
With your own, you can just make up a number that's not really "out of pocket."
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Yes, but it's no different than the gov reimbursment rate for using a personal car. Or per diems. They look at averages and publish a number that covers reasonable real-life use. Yes, you're in the red if you decide to use a Lamborghini, but covered for your average family car.

Same here. Fuel/oil + a published hourly rate based on airplane category (single/twin, etc).

I haven't looked at how long the rule has been in place, but it probably dates from the times when hangars were 100/mo, insurance was peanuts and overhauling an engine wasn't breaking the bank.

We need to make sure the unsuspecting public is (relatively) safe. But at the same time, Joe P Pilot shouldn't have to refuse a $10 lunch because his passenger already gave him $20 for gas.

And if you're wondering what triggered this, it started as me doing the real math for what it would cost for @ArrowFlyer86 to fly his plane from ORD to MIA and back.
 
Put the plane in an LLC. Rent it from the LLC.

-Jim K
Who wishes he had thought of that when he bought his plane.
 
AV8R_87 said:
I do meet with FAA people on a regular basis and like bringing up slightly controversial topics.
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There's no reason not to bring it up. We're not talking about letters to the Chief Counsel asking the wrong question and getting something that everyone thought was OK terminated. You are not asking for "clarification. You are asking for a reconsideration of existing stated policy. That is, of course unless you ask about @flyingron' or @Jim K's dry lease from yourself scenario.

Even then, there's a big difference between FAA people and those in a policy position. I do a WINGS program on Illegal Charter and I pretty much always mention Wingly when I talk about cost sharing. I've even heard ASIs say it would be a good idea. But that's not going to bring it about.
 
How would you figure hanger rent? By the hour? So many hours in a month then divide the actual flight time hours?
 
dcat127 said:
If I ever have an accident I hope the worst thing they find is that I charged my wife 51% for the flight.
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No the passenger tells the faa the pilot charged me so much to fly me somewhere that that the pilot had no intention of going too unless paid by the passenger?
 
AV8R_87 said:
I haven't looked at how long the rule has been in place, but it probably dates from the times when hangars were 100/mo, insurance was peanuts and overhauling an engine wasn't breaking the bank.
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I don't have the text of the reg at that time, but the interpretations of the rule go back to at least 1977.
 
bonefishpete said:
No the passenger tells the faa the pilot charged me so much to fly me somewhere that that the pilot had no intention of going too unless paid by the passenger?
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ok, but now you are changing the question...In that scenario the problem is not the pro-rata sharing percentage part.
 
midlifeflyer said:
I don't have the text of the reg at that time, but the interpretations of the rule go back to at least 1977.
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@AV8R_87, turns out I did have it. The "provided the expenses involve only fuel, oil, airport expenditures, or rental fees" language was added in the big 1997 Part 61 rewrite. It also added the "pro rata" limitation. Prior to that is was simply "A private pilot may share the operating expenses of a flight with his passengers."

This was the FAA's rationale for both additions:
only direct operating and rental expenses may be shared. To avoid a pilot receiving compensation for a flight, indirect operating costs, such as maintenance expenses, are not permitted to be shared. In response to the comment regarding the equal sharing of expenses, the FAA has determined that a pilot may not pay less than the pro rata share of operating expenses. The rationale is that if pilots pay less, they would not just be sharing expenses but would actually be flying for compensation or hire. The rule has been modified accordingly​

That's what you are looking at in terms of your proposed policy change.
 
dcat127 said:
How often does the faa come after people for using the wrong percentage when doing prorata sharing?
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More often than you might think.

Jim K said:
Put the plane in an LLC. Rent it from the LLC.

-Jim K
Who wishes he had thought of that when he bought his plane.
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Lots of folks do this - But it also can create some tax headaches. It's great for the type of pilot that goes through airplanes the way the rest of us go through underwear and wants to avoid paying a ton of sales taxes - They can pay tax on the hourly rate instead of the purchase price if they do it that way. For those of us who keep our airplanes for a while, not so much. Also, if you're renting it from yourself, what's the hourly rate, and how often do you recalculate it? If you try to encompass all expenses and use, let's say, a 5 or 10 year rolling average for maintenance costs, then your "company" is going to make a profit on the years that the plane doesn't need as much time in the shop, and you've gotta pay tax on that, and yadda yadda...

-Flyingcheesehead
Who would probably have the plane in his name and no LLC if he didn't have a co-owner
 
flyingcheesehead said:
More often than you might think.


Lots of folks do this - But it also can create some tax headaches. It's great for the type of pilot that goes through airplanes the way the rest of us go through underwear and wants to avoid paying a ton of sales taxes - They can pay tax on the hourly rate instead of the purchase price if they do it that way. For those of us who keep our airplanes for a while, not so much. Also, if you're renting it from yourself, what's the hourly rate, and how often do you recalculate it? If you try to encompass all expenses and use, let's say, a 5 or 10 year rolling average for maintenance costs, then your "company" is going to make a profit on the years that the plane doesn't need as much time in the shop, and you've gotta pay tax on that, and yadda yadda...

-Flyingcheesehead
Who would probably have the plane in his name and no LLC if he didn't have a co-ownerers
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I hear you. In my case, I'm spending all of February computing machinery costs and doing taxes, so adding one more would not be a huge deal. Any profit or loss in an llc flows through to the owners anyway, so it's kind of a wash. You could even avoid that by billing on an annual basis after all the expenses were in, although that only really works with single owners.

The biggest benefit in my situation would be for charitable flying. I did like 40 hours for Lifeline in '24. That's a $5000+ tax deduction I'm missing out on. I do some business trips as well that would add to that. I've also had discussions with a cfii friend about renting my plane to him. An LLC isn't required for that obviously, but it would make it cleaner.

Alas, the state of Illinois' position is that transferring an aircraft into even a single owner LLC is a taxable sale. Paying 6.5% of the plane's value to state  again makes it probably a 10 year breakeven, which is not that appealing considering the extra work required. I do always suggest others to least consider it when buying though, and some states (most?) would allow the conversion without triggering use tax.
 
AV8R_87 said:
A private pilot may not pay less than the pro rata share of the operating expenses of a flight with passengers, provided the expenses involve only fuel, oil, airport expenditures, or rental fees.

If I rent a plane, the per hour rate includes insurance, engine reserve, depreciation, and a bit of a profit margin for the flight school. All of which can be split with the passengers.
But the owner is only limited to fuel, oil and airport fees. While some of the ownership expenses are slightly less defined, they're still quite quantifiable on a per hour basis.

If insurance is $1200/yr and the plane flies 4 hrs/month, that's $25/hr for insurance. The hangar cost (hey, shouldn't that be included under airport expenditures?) adds $100/hr for a plane that flies 4 hrs/mo. The engine is even better defined, a 50k overhaul adds up to $25/hr.

Yet if I take a friend for a 1hr flight, the FAA says all he can legally pay for is half of the fuel cost. 8gph @$5/gal, he's capped at $20. That flight had a real-life cost of $190. Even if you double the flown hours per month, it will still add up to $130/hr.

Yes, I know that rule is in place mostly to stop 134.5 operations. But still, I get quite the incredulous look when people offer to chip in for a flight and I tell them the max they can pay is $20.
Should we tell the FAA to wake up and realize it takes more than fuel and oil to fly an airplane?
Click to expand...
The expenses you're allowed to split are variable overhead, the others are not. Fuel, oil, and airport expenditures or rental fees are incurred when you fly and are directly attributable to the flight. Insurance and hangar rental are incurred whether or not you fly. Your maintenance reserve is just that, a reserve. Your eventual engine overhaul is not certain and not attributable or allocable to any particular flight.
 
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Jim K said:
Put the plane in an LLC. Rent it from the LLC.

-Jim K
Who wishes he had thought of that when he bought his plane.
Click to expand...
And....... Can the LLC make an outrageous profit? Charge $500 an hour? Split the cost with a friend, who pays you S250 for a trip to Chicago to catch his flight? "Holding out? Shocked that you would say such a thing".

Accounting only a weasel would approve of LOL.
 
WDD said:
And....... Can the LLC make an outrageous profit? Charge $500 an hour? Split the cost with a friend, who pays you S250 for a trip to Chicago to catch his flight? "Holding out? Shocked that you would say such a thing".

Accounting only a weasel would approve of LOL.
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I wouldn't say that. "pays you S250 for a trip to Chicago to catch his flight?" would be just as improper with an airplane rented from an FBO, so let's leave that piece out. Make it an otherwise proper shared flight and it's certainly possible in concept. After all, an LLC is a legal entity that is separate from it's underlying ownership, even if it's a single member LLC. The FAA is completely on board with that. The whole "flight department company" requirement for a 135 certificate is based on that separateness, as are other relationships, including an aircraft and pilot owned/employed by a single member LLC being used to transport the owner of the LLC on personal rather than company business.

I think the issue that can come up (if it does) is whether it's a sham. Is the internal rental rate out of whack relative to the market? Then there's the easy low-hanging fruit with many in the personal aircraft LLC setup: does the single Member treat the LLC as a separate entity or, do they treat the airplane as their own personal property despite it being owned by a company. That's justifies disregarding the entity in most any legal context.
 
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dcat127 said:
How often does the faa come after people for using the wrong percentage when doing prorata sharing?
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FAA seems at times to be zealous about these things.

NorthEast Ohio

Thread 'Door to door air cargo… By a private pilot??'

Door to door air cargo… By a private pilot??
https://sanduskyregister.com/news/307930/smcc-grad-delivers-food-to-kelleys-island/
The article states the pilot is encouraging local residents to place orders with restaurants he’s partnered with. Even if the private pilot is not excepting cash money, isn’t this still “holding out?”


Suggestion for your consideration: When flying a friend for fun, just fly. This hobby is expensive already, so just be a friend and pay. Split the lunch bill, or take turns picking up the tab. IF he/she really wants to pay, 1) take only half of the gas money, or 2) tell your friend to just throw that amount in the offering plate or Salvation Army kettle, etc.

FAA will come after you even if they think you're getting future consideration, future good will, etc. So IMHO, just pay for gas.
 
Lindberg said:
The expenses you're allowed to split are variable overhead, the others are not. Fuel, oil, and airport expenditures or rental fees are incurred when you fly and are directly attributable to the flight. Insurance and hangar recital are incurred whether or not you fly. Your maintenance reserve is just that, a reserve. Your eventual engine overhaul is not certain and not attributable or allocable to any particular flight.
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Hangar and insurance...sure you're paying those no matter what. Maintenance is grayer...I have a couple recurring 100 ADs, and oil changes are every 50...those are directly linked to flight hours. The annual on the other hand happens no matter what. I would argue that engine reserve is a legit hourly expense though; 135 operators must overhaul at TBO.

WDD said:
Suggestion for your consideration: When flying a friend for fun, just fly. This hobby is expensive already, so just be a friend and pay. Split the lunch bill, or take turns picking up the tab. IF he/she really wants to pay, 1) take only half of the gas money, or 2) tell your friend to just throw that amount in the offering plate or Salvation Army kettle, etc.

FAA will come after you even if they think you're getting future consideration, future good will, etc. So IMHO, just pay for gas.
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I agree with this, and it's the way I've always operated. I give rides when my friends need to go somewhere and they reciprocate. They might buy breakfast or put some gas in my tank, but that's not expected. That's part of the fun of being a pilot and having pilot friends. Eventually you're going to get in a jam and need a friend to come pick you up. My thought experiments regarding expenses are mainly with the thought of maximizing tax deductions. Even then, it may not be a good idea. I've heard that airplanes are a red flag to the IRS.
 
AV8R_87 said:
Yes, but it's no different than the gov reimbursment rate for using a personal car. Or per diems. They look at averages and publish a number that covers reasonable real-life use. Yes, you're in the red if you decide to use a Lamborghini, but covered for your average family car.
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Interestingly, when I was working as a civil service engineer for the Navy (early 1980s), they had a standard reimbursement rate for travel in your car... and another rate, about twice as much, if you were using a privately owned plane. The aircraft rate was pretty close to the cost of renting a 172 for the trip, certainly more than a pro rata share. They didn't question whether you had a private or commercial certificate.
 
WDD said:
Suggestion for your consideration: When flying a friend for fun, just fly. This hobby is expensive already, so just be a friend and pay. Split the lunch bill, or take turns picking up the tab. IF he/she really wants to pay, 1) take only half of the gas money, or 2) tell your friend to just throw that amount in the offering plate or Salvation Army kettle, etc.

FAA will come after you even if they think you're getting future consideration, future good will, etc. So IMHO, just pay for gas.
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Your choice but I think that's unnecessarily conservative. And unnecessarily fearful. Sure, a simple $100 hamburger run, I'm not charging a friend to come along with me. But that's not the only kind of sharing situation.

This scenario originally came from the the "FAA-approved" illegal charter program I do periodically. A pilot with an airplane and a group of buddies are going to to a big college football game. Going to share the expenses of the trip. But there are too many fiends for the seats, so the pilot does it in two trips.

The second trip is problematic. But the first trip is about as classic a legitimate 61.113(c) shared flight as can be imagined. Nevertheless, last time I did the poll - in the the Sporty's/Pilot Workshops "GA Pilots' Legal Playbook" program, 15% of the audience (I think we had 200-300 live) said the first trip was illegal.
 
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Dana said:
Interestingly, when I was working as a civil service engineer for the Navy (early 1980s), they had a standard reimbursement rate for travel in your car... and another rate, about twice as much, if you were using a privately owned plane. The aircraft rate was pretty close to the cost of renting a 172 for the trip, certainly more than a pro rata share. They didn't question whether you had a private or commercial certificate.
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Why would they?
 
midlifeflyer said:
15% of the audience … said the first trip was illegal.
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Perhaps 15% of poll audience had (unwarranted) concerns or doubts about common purpose?
(because pilot subsequently departed destination, for second flight)

Yep, with respect to sharing expense,15% of poll response was wrong.

AC 61-142 (Section 9-3-2, page 7):

Example: Seven members of a running club, one of whom is a pilot, are participating in a race and they rent a four-seat aircraft to travel to the event. The pilot has to make two flights each way to transport all seven members. The pilot shares a common purpose with the passengers only in the first flight. This is because following the first flight the pilot would be at his destination and able to participate in the race. The second trip fails the common purpose test because the pilot has already achieved his purpose for the flight, i.e., getting to the race location to participate. Any additional trips would be solely for the reason of transportation of the additional members of the running club, and no common purpose would exist. Therefore, the pilot would only be able to share expenses with the first group of passengers.
 
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MikeNY said:
Perhaps 15% of poll audience had (unwarranted) concerns or doubts about common purpose?
(because pilot subsequently departed destination, for second flight)
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Perhaps, but at this point I'd expect the same numbers even if the two scenarios weren't joined.

Yeah, that scenario has been around in various forms for a while. I don't know of an earlier interrelation, but it's discussed in the 2009 Bobertz Chief Counsel interpretation where it starts by discussing when even the first trip would be improper (most likely because of the way the question was asked).
 
Jim K said:
Hangar and insurance...sure you're paying those no matter what. Maintenance is grayer...I have a couple recurring 100 ADs, and oil changes are every 50...those are directly linked to flight hours.
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Those still aren't hourly expenses, even if reserve for them.
Jim K said:
The annual on the other hand happens no matter what. I would argue that engine reserve is a legit hourly expense though; 135 operators must overhaul at TBO.
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If you're a 135 operator, then this discussion is irrelevant.
 
Lindberg said:
Those still aren't hourly expenses, even if reserve for them.
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By that logic, neither is fuel because it's burned continuously, not hourly
 
Jim K said:
Any profit or loss in an llc flows through to the owners anyway, so it's kind of a wash.
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Isn't it kind of the opposite? You made a profit by taking your own money away, and then you have to pay taxes on it - Sure, it flows through to you, but that doesn't mean you're not paying it.

If it's a loss, great! But you have to show a profit, what is it, at least 1 or 2 years of every 5? I forget.

Jim K said:
You could even avoid that by billing on an annual basis after all the expenses were in, although that only really works with single owners.
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...and is quite common.

Jim K said:
The biggest benefit in my situation would be for charitable flying. I did like 40 hours for Lifeline in '24. That's a $5000+ tax deduction I'm missing out on. I do some business trips as well that would add to that. I've also had discussions with a cfii friend about renting my plane to him. An LLC isn't required for that obviously, but it would make it cleaner.
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All great reasons to do it.

Jim K said:
Alas, the state of Illinois' position is that transferring an aircraft into even a single owner LLC is a taxable sale. Paying 6.5% of the plane's value to state  again makes it probably a 10 year breakeven, which is not that appealing considering the extra work required. I do always suggest others to least consider it when buying though, and some states (most?) would allow the conversion without triggering use tax.
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Illinois sucks... But I think what this means is that you need to buy another airplane. :D
 
flyingcheesehead said:
Illinois sucks
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You'll get no argument here

flyingcheesehead said:
But I think what this means is that you need to buy another airplane
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Clearly. But once again I failed to spin up "Jim's RV-14, LLC". The RV can't be used for Lifeline flights though, so I made the decision it wasn't worth the hassle factor. I haven't yet tackled the question of how IL will attempt to screw me on the use tax when i go to register it. Van's has been collecting sales tax on the kits, so in my mind I've already paid it, but I'll be shocked if they don't try to assess me on the value of a completed, flying RV14.
 
You could keep it here in Indiana with me…


Sent from my iPhone using Tapatalk
 
Jim K said:
Clearly. But once again I failed to spin up "Jim's RV-14, LLC". The RV can't be used for Lifeline flights though, so I made the decision it wasn't worth the hassle factor. I haven't yet tackled the question of how IL will attempt to screw me on the use tax when i go to register it. Van's has been collecting sales tax on the kits, so in my mind I've already paid it, but I'll be shocked if they don't try to assess me on the value of a completed, flying RV14.
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Unless they can come up with a reason that your own labor should be taxed, or they start doing property tax on airplanes, I think you should be safe. Not that the state of IL will agree with me.

I kinda laugh when people move to other states because "they don't have sales taxes" or "they don't have income taxes". The tax man cometh one way or another... At least here in WI, while we have all of the taxes (income, sales/use, property, etc...) they're all balanced and reasonable. I'd hate to live in a state that charged property tax on the airplane!
 
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