IRS Says Airline Baggage Fees not Taxable Income

IRS Says Airline Baggage Fees not Taxable Income

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luggageYou can file this story under airline bailout:

Airline baggage fees are not taxable, the Internal Revenue Service said, a victory for carriers trying to protect a growing revenue stream.

The agency, in a letter this month to an airline, pointed to the IRS code specifying that “charges for transportation of baggage” were not taxable. The letter was posted on the IRS. Web site and did not disclose the carrier that requested the [private letter] ruling.

The decision is “a positive thing for the airlines,” said Jay Sorensen, president of IdeaWorks, an airline consulting firm in Shorewood, Wis. “It will allow the airlines over the long term to realize all the revenue. They won’t have to share with the government.”

Carriers have been increasingly turning to sources other than tickets for revenue as government figures show fares stagnated at 1998 levels last year. Mr. Sorensen estimated in a recent report that the five largest airlines will collect $1.76 billion to check first and second bags, a $117 million increase over last year.

Read the entire Private Letter Ruling and remember the qualifying sentence that is contained in all Private Letter Rulings:

The Ruling is directed only to the person requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Here’s the applicable tax code section (emphasis added):

§ 4272. Definition of taxable transportation, etc.

(a) In general
For purposes of this part, except as provided in subsection (b), the term “taxable transportation” means transportation by air which begins and ends in the United States.
(b) Exceptions
For purposes of this part, the term “taxable transportation” does not include —
(1) that portion of any transportation which meets the requirements of paragraphs (1), (2), (3), and (4) of section 4262 (b), or
(2) under regulations prescribed by the Secretary, transportation of property in the course of exportation (including shipment to a possession of the United States) by continuous movement, and in due course so exported.
(c) Excess baggage of passengers
For purposes of this part, the term “property” does not include excess baggage accompanying a passenger traveling on an aircraft operated on an established line.
(d) Transportation
For purposes of this part, the term “transportation” includes layover or waiting time and movement of the aircraft in deadhead service. 
About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida