In choosing the appropriate structure for your aircraft’s operations under Part 91, you need to consider FAA rules, state and federal tax laws and liability issues. This article focuses on the FAA’s general rule regarding taking compensation for flights under Part 91.
In general, no compensation is permitted if an aircraft is being operated under Part 91. If the operator of the aircraft receives compensation for the flight, then the operator must be an FAA air carrier or commercial operator and operate the flight under Part 135.
The FAA defines “compensation” broadly. The threshold question for compensation is whether the operator of the aircraft is receiving anything of value for carrying passengers or property.
The phrase “anything of value” can encompass value of any type or in any amount received by the operator the aircraft from a different entity or person. It includes value that is received from a disregarded entity for tax purposes or from the owner of the operator (whether the owner is a person or an entity).
Additionally, compensation does not require an actual exchange of cash or even a profit motive. Compensation can be capital contributions to the operating entity or simply the sharing of costs.
As such, all Part 91 operators need to be aware of this broad definition of compensation in order to not violate the FAA rules. However, there are exceptions to the FAA’s prohibition on compensation for Part 91 flights detailed in FAR 91.501 which will be described in a future article.
Overall, there are numerous factors to consider when determining the appropriate operating structure for your aircraft. This article is intended to highlight the FAA’s general rule regarding compensation for Part 91 operation. For additional information and to determine the best operational structure for your aircraft, please contact the attorneys at Aero Law Group PC and they will be happy to assist you.