Part III · Structures · No. 04

Part 91 vs. Part 135

The FAA's two governing regimes for private aircraft operations carry materially different tax consequences. The owner who can fly when and how she wants — Part 91 — pays no 7.5% transportation excise but operates a non-commercial aircraft. The commercial operator — Part 135 — collects the excise but accepts on-demand commercial requirements.

What the structure is

14 C.F.R. Part 91 governs general aviation operations not held out for compensation. Owner-flown aircraft, business aircraft flown by employee pilots for the owner's transportation, and similar non-commercial flights operate under Part 91.

14 C.F.R. Part 135 governs on-demand commercial operations — the aircraft is held out for hire to the public, the operator holds an Air Carrier Certificate, and the operation meets the heightened safety, training, maintenance, and dispatch requirements.

The choice between the two regimes — and the structural arrangements that move flights from one to the other — has substantial federal tax consequences. Note, however, that the FAA label is not itself the tax test: for the §4261 excise, the IRS asks whether the person providing the flight retains "possession, command and control" of the aircraft, so a flight conducted under Part 91 can still be taxable transportation (for example, a time-sharing flight) and the analysis follows the substance of the arrangement.

The tax problem it addresses

The principal tax differences:

• 7.5% transportation excise (§4261). Applies to amounts paid for taxable air transportation of persons — notably Part 135 charter and time-sharing payments — but not to an owner flying its own aircraft. For 2026 (Rev. Proc. 2025-32) the 7.5% tax is accompanied by a $5.30 per-passenger domestic segment fee; international flights instead bear a $23.40 per-person arrival/departure tax. Illustratively, a $20,000 domestic charter bears $1,500 of percentage tax plus segment fees. Air transportation of property is taxed separately at 6.25% under §4271. Small aircraft (maximum certificated takeoff weight of 6,000 pounds or less) not operated on an established line are exempt under §4281.
• Fuel excise. Kerosene used in noncommercial aviation (including Part 91 business flights) is taxed at 21.9 cents per gallon; commercial aviation (for example, taxable Part 135 charter) at 4.4 cents per gallon (both including the 0.1-cent LUST tax), per IRS Publication 510.
• Depreciation recovery period. Under Rev. Proc. 87-56, airplanes not used in commercial or contract carrying of passengers or freight (asset class 00.21) are 5-year MACRS property; aircraft used in commercial air transport (asset class 45.0) are 7-year property. An aircraft is listed property under §280F: unless qualified business use exceeds 50%, the alternative depreciation system applies and bonus depreciation is unavailable.
• §4043 fractional-program surtax. Fuel used in fractional-ownership program aircraft bears a 14.1-cents-per-gallon surtax; flights in a qualifying program are treated as noncommercial and are exempt from the §4261 and §4271 transportation taxes (§4261(j)). The surtax currently applies through 30 September 2028.
• Management-company arrangements. Management companies often provide both operational support for Part 91 owner flights and charter capability under Part 135. After years of IRS challenges to managed-aircraft arrangements, the Tax Cuts and Jobs Act of 2017 added §4261(e)(5), which exempts amounts paid by an aircraft owner (or a lessee under a lease longer than 31 days) for aircraft management services — crew, maintenance, storage, fueling, scheduling, insurance — relating to flights on the owner's own aircraft.

Mechanics

An owner-flown private aircraft under Part 91:

• Owner makes flight decisions, controls passenger list, pays operating costs directly.
• No 7.5% excise on flights for the owner or hosted passengers.
• Business use must be substantiated under §274(d), and the §280F more-than-50% qualified-business-use test governs MACRS and bonus eligibility.
• §274(a) and Treas. Reg. §1.274-10 disallow costs allocable to entertainment flights; personal flights by employees and owners are generally imputed as income using the Standard Industry Fare Level (SIFL) formula of Treas. Reg. §1.61-21(g), and for "specified individuals" the deduction for entertainment flights is limited to the amount imputed (§274(e)(2)).
• Noncommercial fuel excise rate.

A managed Part 91 aircraft:

• Owner contracts with a management company for crew, maintenance, dispatch.
• Flights remain Part 91 if owner retains "operational control" — the FAA's term of art under 14 C.F.R. §1.1.
• Qualifying aircraft-management fees paid by the owner are exempt from the 7.5% excise under §4261(e)(5) (enacted in 2017).
• Arrangements in which the management company, rather than the owner, retains possession, command and control — or in which the owner effectively buys transportation — remain exposed to the excise.

A Part 135 charter aircraft:

• Operator holds Air Carrier Certificate.
• Aircraft held out for hire to the public.
• 7.5% excise on each charter passenger transportation transaction.
• Operator's compliance with Part 135 training, maintenance, manuals, dispatch requirements.
• 7-year MACRS (asset class 45.0) for an aircraft used in commercial air transport.

The applicable statutes and authorities

• 14 C.F.R. Parts 91, 135 (FAA operational rules).
• 14 C.F.R. §1.1 (definition of "operational control").
• 26 U.S.C. §4261 (transportation of persons excise), including §4261(e)(5) (aircraft management services) and §4261(j) (fractional programs); §4271 (transportation of property); §4281 (small aircraft).
• 26 U.S.C. §4041 (fuel excise on sales and uses not taxed at removal); §4081 (tax on removal of fuel at the terminal rack).
• 26 U.S.C. §4043 (fractional ownership program surtax).
• 26 U.S.C. §§168, 274, 280F; Treas. Reg. §§1.61-21(g) (SIFL), 1.274-10 (aircraft entertainment use).
• Various IRS Chief Counsel Advice and private rulings on the line between Part 91 and Part 135 for excise purposes.

Substance and audit risk

Before 2017 the IRS scrutinized aircraft management-company arrangements through §4261 excise audits, asserting that certain "fee-for-service" arrangements were in substance taxable transportation; §4261(e)(5) now exempts qualifying management fees, but charter, time-sharing, and arrangements where the operator keeps possession, command and control remain taxable. On the income-tax side, the IRS announced in February 2024 (IR-2024-46) that it would open dozens of examinations of business-aircraft use by large corporations, partnerships, and high-income taxpayers, focusing on the allocation between business and personal use, §274 disallowance, income imputation, and bonus-depreciation eligibility. See aircraft personal-use audits.

Documentation is critical:

• Logbooks showing flight purpose, persons aboard, time-in-service.
• Operational-control statements consistent with the asserted Part 91 status.
• Management agreements that conform to the FAA and IRS frameworks for Part 91 fee-for-service operations.
• Charter agreements that document the charter relationship for Part 135 flights.

Cost and complexity

Part 91 operation: crew, maintenance, hangar, insurance, and fuel. Annual fixed and variable costs for a light business jet commonly run to several hundred thousand dollars or more, scaling with size and utilization.

Part 135 operation: substantially higher. Air Carrier Certificate compliance, FAA-approved manuals, drug-and-alcohol program, dispatch procedures, expanded crew training, maintenance to Part 135 standards. Most owners outsource Part 135 operation to a third-party charter management company rather than holding their own Air Carrier Certificate.

Common combinations

• Part 91 owner with charter availability through a management company. Hybrid arrangement: owner uses aircraft under Part 91 with operational control; management company charters aircraft to third parties under Part 135 when owner not using. Excise applies to charter operations only.
• Dry leases and time-sharing. Under a dry lease the lessee supplies its own crew and holds operational control, so the lessee's flights are its own Part 91 operations. A time-sharing agreement (14 C.F.R. §91.501(c)(1)) is a lease of the aircraft with flight crew, for which the owner may charge only the expenses listed in §91.501(d) (up to twice the fuel cost plus specified costs); amounts paid under a time-sharing agreement are generally subject to the §4261 excise.
• Fractional ownership. Fractional programs operate under 14 C.F.R. Part 91, Subpart K; qualifying program flights are exempt from the §4261 excise and instead bear the §4043 surtax.
• Foreign-registered aircraft. Operated under foreign registration (Isle of Man, San Marino, Aruba) with U.S. operational considerations.

Recent developments

The IRS's February 2024 business-aircraft examination initiative (IR-2024-46), funded under the Inflation Reduction Act, focuses on personal use, §274 disallowance, fringe-benefit imputation, and depreciation. Owners should expect contemporaneous flight-by-flight records to be requested.

The One Big Beautiful Bill Act (Pub. L. 119-21, signed 4 July 2025) permanently restored 100% bonus depreciation under §168(k) for qualified property acquired after 19 January 2025, reversing the TCJA phase-down (which would have allowed 20% for 2026). Aircraft acquired under a binding contract before 20 January 2025 remain subject to the phase-down percentages. Bonus remains unavailable where the §280F qualified-business-use test is not met.

Reviewed October 2026