IRS will not go after airline fare hikes

WASHINGTON Fri Aug 5, 2011 5:36pm EDT

Planes take off and land at Washington's Reagan National Airport in Alexandria, Virginia, August 4, 2011. REUTERS/Jonathan Ernst

Planes take off and land at Washington's Reagan National Airport in Alexandria, Virginia, August 4, 2011.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - The government does not plan to go after more than $400 million in airline revenue from fare increases that were facilitated by a two-week ticket-tax holiday resulting from a congressional dispute over aviation funding.

The Internal Revenue Service said on Friday it did not intend to seek retroactive payments from passengers or airlines relating to taxes that were not collected during a partial shutdown of the Federal Aviation Administration.

Consumer advocacy groups and some in government sought to shame the airlines, including American Airlines, Delta Air Lines, United Airlines, Southwest Airlines and US Airways, into ending fare hikes that were imposed soon after the 7.5 percent ticket tax was suspended.

"What do they do the minute that they're not required to remit those fees to the government?" said Robert Mann, a former airline executive who is now an industry consultant. "They internalize them and make them part of the fare, which, of course, has the same effect, because out of pocket the customer is paying the same price."

President Barack Obama said this week it would not be easy "to get that money back."

The ticket tax, which amounts to about $30 million per day in receipts, funds a federal trust account the FAA uses to help pay its bills.

The requirement for tax collection was suspended during the FAA shutdown, which was caused by a congressional impasse over legislation to temporarily fund the agency.

The congressional standoff, which affected some 70,000 jobs related to airport construction and nearly 4,000 FAA positions that were placed on furlough, ended on Friday when Obama signed a stop-gap spending bill approved by the Senate earlier in the day.

Airlines have until Monday to restart ticket tax collections. The airlines were unapologetic about capitalizing on the tax holiday and stood to make more than $1 billion had the standoff run until Congress returned in early September from its month-long recess.

The main trade group for the industry, the Air Transport Association, said in a statement that it would defer to the IRS on any decision regarding the collection of ticket taxes.

Lawmakers will immediately have to consider another stop-gap spending bill for the aviation agency when Congress resumes in September, possibly reviving the ticket tax issue.

The IRS decision followed a letter to the agency from senior members of congressional tax writing committees, urging the agency to consider the impact on consumers and the airlines taxes are collected retroactively.

Additionally, the IRS said passengers who bought tickets before the shutdown -- paying the 7.5 percent tax -- and traveled during it would not be entitled to any refunds, which could have totaled about $60 per ticket.

(Additional reporting by Donna Smith and Kyle Peterson; Editing by Bill Trott)

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Comments (5)
hike wrote:
The Republican Freshman Congress is making a mess. In the workplace they would be laid off, because they are not doing their job. It is fairly evident that they do not know what they are doing, so I hope next time that the people who voted for them, will pay attention.

Aug 04, 2011 10:28pm EDT  --  Report as abuse
burf wrote:
@hike: they know what they’re doing… they just have an aversion for Democracy. Throughout American History, there’s an understanding that with winning comes its spoils. Over the past couple of decades, the GOP just acts as sore losers, whenever a Dem wins the Presidency. They think they’re the Americans, and everyone else is something else. Hence, all they do is block everything, & try to create chaos… and, in the process if they damage America, it’s cool because then they can blame the Dems. Just like they blame Pres Obama & the Dems, for what THEY did with the Budget Surplus (and the paying down the debt), when they took power in 2001.
And of course, Pres Obama is a Socialist, Fascist, Muslim, Kenyan-born, terrorist sympathizer, who doesn’t have American values, and wants to destroy America. Lots of projection going on in GOPers minds.

Aug 04, 2011 12:19am EDT  --  Report as abuse
USAPragmatist wrote:
I find it funny that they did not even come back from vacation to approve this. Shows where they really place their priorities.

Aug 05, 2011 10:03am EDT  --  Report as abuse
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