AOPA Plane Giveaway and Taxes

[Jon Kraus]

Does anyone know if there would be tax consequences for the lucky winner
of the AOPA Commander 112. Thanks!!

Jon Kraus
'79 Mooney 201
4443H @ TYQ

[sfb]

Taxable income.

"Jon Kraus" > wrote in message
m...
> Does anyone know if there would be tax consequences for the lucky
> winner of the AOPA Commander 112. Thanks!!
>
> Jon Kraus
> '79 Mooney 201
> 4443H @ TYQ
>

[Al Gilson]

I would assume that the retail value of the aircraft would need to be
added to your 1040 as regular income. Just like lottery winners, game
show winners, etc.

- - - -
Al


Jon Kraus wrote:
> Does anyone know if there would be tax consequences for the lucky winner
> of the AOPA Commander 112. Thanks!!
>
> Jon Kraus
> '79 Mooney 201
> 4443H @ TYQ
>

[George Patterson]

Jon Kraus wrote:
> Does anyone know if there would be tax consequences for the lucky winner
> of the AOPA Commander 112. Thanks!!

The winner will pay Federal income taxes. Most States also have an income tax,
and the winner will pay that if he or she lives in one. Many States will also
charge a sales or usage tax.

Living here in New Jersey, I would pay 12% of the value of the plane to the
State. I'm no longer sure what the Federal tax percentage is. It used to be
about 33%. If it still is, the total tax bill would be 45%.

George Patterson
We don't stop playing because we grow old. We grow old because we stop
playing.

[Ron Wanttaja]

On Sun, 27 Nov 2005 16:59:41 GMT, B A R R Y
> wrote:

> On Sun, 27 Nov 2005 16:50:05 GMT, Jon Kraus >
> wrote:
>
> >Does anyone know if there would be tax consequences for the lucky winner
> >of the AOPA Commander 112.
>
> It would depend on your Federal bracket, and your state and local
> obligations, applied to the market value of the prize.

Back when rec.aviation participant Margaret Puckette won the AOPA Archer, AOPA
did do some work to lower the valuation of the aircraft, so she didn't have to
pay taxes on the full retail value. However, she was still stuck with a ~$35K
tax bill.

Ron Wanttaja

[Paul Tomblin]

In a previous article, George Patterson > said:
>Jon Kraus wrote:
>> Does anyone know if there would be tax consequences for the lucky winner
>> of the AOPA Commander 112. Thanks!!
>
>The winner will pay Federal income taxes. Most States also have an income tax,
>and the winner will pay that if he or she lives in one. Many States will also
>charge a sales or usage tax.

So do they valuate the aircraft at the fair market value (ie. what a
normal Commander 112 of that age would fetch), or do they add all the
ridiculously expensive add-ons (none of which AOPA actually pays for,
since it's free advertising for the supplier) to that price and value it
at an amount that you'd never be able to sell the plane for in a million
years?



--
Paul Tomblin > http://xcski.com/blogs/pt/
I mean, if went 'round saying I was a perl hacker, just because some
moistened bint lobbed a "Perl for Dummies" at me, they'd put me away!
-- Randy the Random

[Peter R.]

Ron Wanttaja > wrote:

> Back when rec.aviation participant Margaret Puckette won the AOPA Archer, AOPA
> did do some work to lower the valuation of the aircraft, so she didn't have to
> pay taxes on the full retail value. However, she was still stuck with a ~$35K
> tax bill.

Rush right off and get that aircraft assigned to some business, then start
taking the aggressive depreciation on it! ;-)

--
Peter

[nobody]

The lucky winner can cover the income taxes by simply
giving the airplane to me, and I'll pay the taxes for them. :-)



"Jon Kraus" > wrote in message
m...
> Does anyone know if there would be tax consequences for the lucky winner
> of the AOPA Commander 112. Thanks!!
>
> Jon Kraus
> '79 Mooney 201
> 4443H @ TYQ
>

[Matt Whiting]

Paul Tomblin wrote:
> In a previous article, George Patterson > said:
>
>>Jon Kraus wrote:
>>
>>>Does anyone know if there would be tax consequences for the lucky winner
>>>of the AOPA Commander 112. Thanks!!
>>
>>The winner will pay Federal income taxes. Most States also have an income tax,
>>and the winner will pay that if he or she lives in one. Many States will also
>>charge a sales or usage tax.
>
>
> So do they valuate the aircraft at the fair market value (ie. what a
> normal Commander 112 of that age would fetch), or do they add all the
> ridiculously expensive add-ons (none of which AOPA actually pays for,
> since it's free advertising for the supplier) to that price and value it
> at an amount that you'd never be able to sell the plane for in a million
> years?

A normal Commander of that age wouldn't have all of the upgrades so you
can't use that as fair market value. I would hope they would have the
airplane appraised by someone who does that for a living to get a
reasonable value. Yes, you can't just add up the cost of the upgrades,
but you certainly can't take the market price of a standard Commander
either. I wish AOPA would include a cash prize that would at least
cover part of the taxes. I saw a lame excuse as to why they couldn't do
this, but the folks at Kiplinger Personal Finance do this and they
should know the tax laws at least as well AOPA.


Matt

[Frank Ch. Eigler]

B A R R Y > writes:

> [...] Go find a '75 Cherokee with the original equipment, now find
> a similar plane with "ridiculously expensive add-ons", like a glass
> cockpit. The market values will differ, possibly
> exponentially. [...]

I wonder - when you say "exponentially", do you mean "mathematically
related to the function e**x"? Or do you mean simply "a lot"?

- FChE

[Paul Tomblin]

In a previous article, said:
>The fact that AOPA didn't pay for upgrades is meaningless when
>calculating market value. If an owner inherits a plane, is worth less
>than if he or she had purchased it? Actual market value has nothing
>to do with what one particular owner paid for the item.

No, but adding $250,000 worth of stuff to a $100,000 aircraft does not
make it worth $350,000. Because when it comes down to it, it's still a
competing on the market with $100,000 aircraft with similar capabilities.

--
Paul Tomblin > http://xcski.com/blogs/pt/
Will debug C homework for lap dances.
-- Mike Looney

[Juan Jimenez]

"B A R R Y" > wrote in message
...
> On Sun, 27 Nov 2005 22:41:50 +0000 (UTC),
> (Paul Tomblin) wrote:
>
>>No, but adding $250,000 worth of stuff to a $100,000 aircraft does not
>>make it worth $350,000. Because when it comes down to it, it's still a
>>competing on the market with $100,000 aircraft with similar capabilities.
>
> Or it's competing with a NEWER aircraft.
>
> To use easily followed examples, what's a NEW Cherokee or 172 go for,
> compared to a 30 year old, all original version? The 30 year old,
> with kick-ass electronics, freshened up propulsion, and a new interior
> and paint very well may hit 75-80% of the new one's price.

On what planet? Do you even know what a new 172 costs?

[Robert M. Gary]

That doesn't effect the amount of taxes you pay on it, just when you
pay the taxes.

[George Patterson]

Paul Tomblin wrote:

> So do they valuate the aircraft at the fair market value (ie. what a
> normal Commander 112 of that age would fetch), or do they add all the
> ridiculously expensive add-ons (none of which AOPA actually pays for,
> since it's free advertising for the supplier) to that price and value it
> at an amount that you'd never be able to sell the plane for in a million
> years?

Basically, you're stuck with what they paid for the plane, plus the price of all
the add-ons. Just as if you bought the plane for that price and paid to have all
that work done. You can try getting an appraiser to produce a value for the
plane, but that won't fly with the State of New Jersey (dunno about the Feds).

The only way I know to pay taxes on a lower value is to sell the plane for less.
Selling the plane automatically determines the market value.

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

[TaxSrv]

"George Patterson" wrote:
> Basically, you're stuck with what they paid for the plane, plus
the price of all
> the add-ons. Just as if you bought the plane for that price and
paid to have all
> that work done. You can try getting an appraiser to produce a
value for the
> plane, but that won't fly with the State of New Jersey (dunno
about the Feds).
>

That ain't the IRS position. The number on Form 1099 is to be fair
market value, and indeed the value of all the "stuff" added may not
reflect final FMV, as other posters have noted. What does often
happen with issuers of 1099s is they think if they don't put an
"optimum value" on the 1099, they get into trouble with IRS.
Nonsense, as they have no enforcement program for this on the payer
side, and in fact IRS would rather not get into audit hassles where
the winner claims a justified, lesser value on Form 1040.

Fred F.

[john smith]

Just because you stuff new stuff inside doesn't change the fact that the
airframe is xx-years old.
Last I checked, an xx-year old airframe doesn't have the same value as
one fresh out of the factory.
Likewise, the value of the new stuff stuffed inside the xx-year old
airframe won't have the same value as the same stuff in a box on the
shops shelf.
Once installed, it becomes used equipment and is devalued accordingly.

[sfb]

Sure that isn't two separate and distinct transactions - winning and
then selling at a capital loss unless you are 81mm who doesn't think the
IRS exists.

"George Patterson" > wrote in message
news:zTtif.763$iZ3.401@trndny03...
> Paul Tomblin wrote:
>
>> So do they valuate the aircraft at the fair market value (ie. what a
>> normal Commander 112 of that age would fetch), or do they add all the
>> ridiculously expensive add-ons (none of which AOPA actually pays for,
>> since it's free advertising for the supplier) to that price and value
>> it
>> at an amount that you'd never be able to sell the plane for in a
>> million
>> years?
>
> Basically, you're stuck with what they paid for the plane, plus the
> price of all the add-ons. Just as if you bought the plane for that
> price and paid to have all that work done. You can try getting an
> appraiser to produce a value for the plane, but that won't fly with
> the State of New Jersey (dunno about the Feds).
>
> The only way I know to pay taxes on a lower value is to sell the plane
> for less. Selling the plane automatically determines the market value.
>
> George Patterson
> Coffee is only a way of stealing time that should by rights
> belong to
> your slightly older self.

[Matt Whiting]

john smith wrote:
> Just because you stuff new stuff inside doesn't change the fact that the
> airframe is xx-years old.
> Last I checked, an xx-year old airframe doesn't have the same value as
> one fresh out of the factory.
> Likewise, the value of the new stuff stuffed inside the xx-year old
> airframe won't have the same value as the same stuff in a box on the
> shops shelf.
> Once installed, it becomes used equipment and is devalued accordingly.

Sure, but the airplane is still worth a lot more than an unupgraded
airplane of the same model and vintage.

Matt

[OtisWinslow]

If it pushes you into the AMT it could a lot.


"Jon Kraus" > wrote in message
m...
> Does anyone know if there would be tax consequences for the lucky winner
> of the AOPA Commander 112. Thanks!!
>
> Jon Kraus
> '79 Mooney 201
> 4443H @ TYQ
>

[Ron Natalie]

TaxSrv wrote:

> That ain't the IRS position. The number on Form 1099 is to be fair
> market value, and indeed the value of all the "stuff" added may not
> reflect final FMV, as other posters have noted.

I agree with Fred here. In the case of something like a "New Car"
the IRS will consider the value to be the MSRP. However since this
isn't the case, some acceptable appraisal technique (blue book,
etc...) will apply.

[sfb]

Except there the "blue book" on new property is the manufacturers list
price. Fair market value is the price the plane would bring on the open
market between willing sellers and buyer. IRS Pub 561.
http://www.irs.gov/pub/irs-pdf/p561.pdf#search='irs%20fair%20market%20value'

The challenge with a new plane loaded with expensive extras is that it
is unique so willing buyers may be few since they can buy the same plane
new and upgrade it as they choose making the fair market value approach
list prices.

"Ron Natalie" > wrote in message
m...
> TaxSrv wrote:
>
>> That ain't the IRS position. The number on Form 1099 is to be fair
>> market value, and indeed the value of all the "stuff" added may not
>> reflect final FMV, as other posters have noted.
>
> I agree with Fred here. In the case of something like a "New Car"
> the IRS will consider the value to be the MSRP. However since this
> isn't the case, some acceptable appraisal technique (blue book,
> etc...) will apply.

[TaxSrv]

"Ron Natalie"wrote:
> I agree with Fred here. In the case of something like
> a "New Car" the IRS will consider the value to be the
> MSRP. However since this isn't the case, some
> acceptable appraisal technique (blue book, etc...) will
> apply.

The IRS has no basis in case law to enforce MSRP on a car, and
since IRS examination employees buy new cars, they are well aware
what negotiated prices are. The difficulty with arguing FMV on an
airplane is that they may not accept just one appraisal submitted
by the taxpayer. However, since 1998, IRS will have the burden of
proof on this one, so that settlement in an appeals conference
shouldn't be too difficult.

Fred F.

[sfb]

IRS pub 561 puts the responsibility for the appraisal on you and the IRS
is not obligated to accept the appraisal without question. Despite the
magic of the 1998 act, the taxpayer still retains much of the burden of
burden of proof with regard to fair market value.

"TaxSrv" > wrote in message
...
> "Ron Natalie"wrote:
>> I agree with Fred here. In the case of something like
>> a "New Car" the IRS will consider the value to be the
>> MSRP. However since this isn't the case, some
>> acceptable appraisal technique (blue book, etc...) will
>> apply.
>
> The IRS has no basis in case law to enforce MSRP on a car, and
> since IRS examination employees buy new cars, they are well aware
> what negotiated prices are. The difficulty with arguing FMV on an
> airplane is that they may not accept just one appraisal submitted
> by the taxpayer. However, since 1998, IRS will have the burden of
> proof on this one, so that settlement in an appeals conference
> shouldn't be too difficult.
>
> Fred F.
>

[Nathan Young]

On Sun, 27 Nov 2005 23:32:23 GMT, B A R R Y
> wrote:

>To use easily followed examples, what's a NEW Cherokee or 172 go for,
>compared to a 30 year old, all original version? The 30 year old,
>with kick-ass electronics, freshened up propulsion, and a new interior
>and paint very well may hit 75-80% of the new one's price.

A new 2005 Archer III with glass panel is $295,000.

A 1975 Archer sells for $60-70k.

Adding a pristine paint job will be $10k, interior $8k, Garmin panel +
STEC A/P $30k, factory reman'ed engine $30k installed. These refurb
prices are on the high side. Sum total =

70 (purchase)
10 paint
8 interior
30 new avionics
30 engine
---------------------
$148k, which is approx 50% of a new Archer.

The reality is a plane decked out as above would not sell for more
than $125k (42%), and in all likelyhood will sell closer to $100k
(34%).

Not a bad deal considering the $100k fixed up Archer will perform
within a few knots, have similar range, and probably a better useful
load than the Archer III.

-Nathan

[Roy Page]

This is an interesting discussion I would like to see what the consensus
think this AOPA bird is really worth.

The lower powered 112 does not sell as well as the 114 but just a few hours
since SMOH, new paint and nice new interior may have the AOPA birds value up
to around $100,000.
Now add the turbo normalize, and all the fancy new instruments and avionic
glass might add say $50,000.
So I will start the ball rolling and say it will be worth about $150,000 on
the open market.

Incidentally, the AOPA guy who flies it around told me at OSH that it was a
low powered dog and he would prefer his own Comanche !
But it did not have the turbo normalizer on at that point.
I just wish it would come my way !!!

So how far away am I with my valuation of $150,000 ????

--
Roy
N5804F Piper Archer

"I have had some bad landings but I have never missed the runway"


"sfb" > wrote in message news:H3Fif.3507$P33.1126@trnddc01...
> IRS pub 561 puts the responsibility for the appraisal on you and the IRS
> is not obligated to accept the appraisal without question. Despite the
> magic of the 1998 act, the taxpayer still retains much of the burden of
> burden of proof with regard to fair market value.
>
> "TaxSrv" > wrote in message
> ...
>> "Ron Natalie"wrote:
>>> I agree with Fred here. In the case of something like
>>> a "New Car" the IRS will consider the value to be the
>>> MSRP. However since this isn't the case, some
>>> acceptable appraisal technique (blue book, etc...) will
>>> apply.
>>
>> The IRS has no basis in case law to enforce MSRP on a car, and
>> since IRS examination employees buy new cars, they are well aware
>> what negotiated prices are. The difficulty with arguing FMV on an
>> airplane is that they may not accept just one appraisal submitted
>> by the taxpayer. However, since 1998, IRS will have the burden of
>> proof on this one, so that settlement in an appeals conference
>> shouldn't be too difficult.
>>
>> Fred F.
>>
>
>

[George Patterson]

sfb wrote:
> Sure that isn't two separate and distinct transactions - winning and
> then selling at a capital loss unless you are 81mm who doesn't think the
> IRS exists.

If you sell the plane before you have to pay the taxes on it, the price for
which you sell it is, by definition, the fair market value of the plane. You can
then use that as your basis for the taxes. Of course, if you turn around and
sell it for something ridiculous (like, say, $100), the IRS will be taking a
*very* close look at your finances, the buyer's finances, and any other
relationships between the two of you.

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

[Peter R.]

"Robert M. Gary" > wrote:

> That doesn't effect the amount of taxes you pay on it, just when you
> pay the taxes.

Accelerated depreciation expense will most likely offset a good portion of
any income tax owed on the awarded aircraft, assuming both events occurred
during the same tax year.

A friend of mine won a new Volvo (automobile) a few years ago in a charity
sweepstakes but opted to take the cash rather than the vehicle. The cash
equivalent was about $40,000. He, as owner of his own insurance business,
had his accountant restate some losses or depreciation (I cannot recall
which) and was able to offset the entire income tax owed on the winnings.


--
Peter

[Peter R.]

Juan Jimenez > wrote:

> On what planet? Do you even know what a new 172 costs?

Too much, that's for sure.


--
Peter

[[email protected]]

Peter R. wrote:
> Ron Wanttaja > wrote:
>
> > Back when rec.aviation participant Margaret Puckette won the AOPA Archer, AOPA
> > did do some work to lower the valuation of the aircraft, so she didn't have to
> > pay taxes on the full retail value. However, she was still stuck with a ~$35K
> > tax bill.
>
> Rush right off and get that aircraft assigned to some business, then start
> taking the aggressive depreciation on it! ;-)

Since you can only take depreication against the basis (or cost to put
into service), and since her basis would be $0 since she got the plane
for free, I can't see the point of this strategy.

[Ron Natalie]

sfb wrote:
> Except there the "blue book" on new property is the manufacturers list
> price.

I said that. New items are valued at the MSRP (regardless of how
inflated that might be over what the actual VALUE of the item is).

> The challenge with a new plane loaded with expensive extras is that it
> is unique so willing buyers may be few since they can buy the same plane
> new and upgrade it as they choose making the fair market value approach
> list prices.
>
This is NOT a new aircraft. It's a 1974 aircraft that they've been
overhauling.

[Ron Natalie]

TaxSrv wrote:
> "Ron Natalie"wrote:
>> I agree with Fred here. In the case of something like
>> a "New Car" the IRS will consider the value to be the
>> MSRP. However since this isn't the case, some
>> acceptable appraisal technique (blue book, etc...) will
>> apply.
>
> The IRS has no basis in case law to enforce MSRP on a car,

Sorry Fred, but if you are really a tax expert, you should do
some research into the issue. The MSRP *IS* what the IRS
values a new car winning as .

[Ron Natalie]

Peter R. wrote:
> "Robert M. Gary" > wrote:
>
>> That doesn't effect the amount of taxes you pay on it, just when you
>> pay the taxes.
>
> Accelerated depreciation expense will most likely offset a good portion of
> any income tax owed on the awarded aircraft, assuming both events occurred
> during the same tax year.
>
If the capital asset doesn't really depreciate to match, you will have
to recapture that depreciation deduction. Chances are you'll still
come out ahead though.

[Peter R.]

> wrote:

> Since you can only take depreication against the basis (or cost to put
> into service), and since her basis would be $0 since she got the plane
> for free, I can't see the point of this strategy.

What if the recipient's s-corp purchased the aircraft for the business?
Wouldn't that establish a basis?


--
Peter

[Robert M. Gary]

You come out ahead because a dollar today is better than a dollar
tomorrow. However, in the end, the thing will depreciate as much as it
will depreciate. Taking accelerated depreciation just means you can
capture that depreciation faster. Its just a paperwork thing. When you
sell it, any gains get recaptured and you end up paying back any
acceleration.

-Robert

[Robert M. Gary]

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

[Robert M. Gary]

Depends on the state of residence. Those who only pay federal taxes
will get off pretty easily. Here in the People's Republic of California
we pay 8%+ sales/use tax, then 1% every year in property tax. Add to
that state taxes on the fuel and tie down you are using.

-Robert

[Robert M. Gary]

> What if the recipient's s-corp purchased the aircraft for the business?
> Wouldn't that establish a basis?

BTW: In California we have a minimum tax for S-corps, C-corps, LLC, etc
of $800/yr. You would have to pay the $800/yr for the privilege of
being incorporated.

-Robert

[[email protected]]

Peter R. wrote:
> > wrote:
>
> > Since you can only take depreication against the basis (or cost to put
> > into service), and since her basis would be $0 since she got the plane
> > for free, I can't see the point of this strategy.
>
> What if the recipient's s-corp purchased the aircraft for the business?
> Wouldn't that establish a basis?
>

Sure, for the s-corp. But the recipient will still have to pay taxes
on the FMV of the plane that she received for free and sold to the
s-corp. That FMV will be what the s-corp paid her for it, unless that's
obviously a sham price below book value in which case she would
probably have to pay taxes on book value.

..

[[email protected]]

Robert M. Gary wrote:
> You come out ahead because a dollar today is better than a dollar
> tomorrow. However, in the end, the thing will depreciate as much as it
> will depreciate. Taking accelerated depreciation just means you can
> capture that depreciation faster. Its just a paperwork thing. When you
> sell it, any gains get recaptured and you end up paying back any
> acceleration.
>

Unless tax rates have changed since I had depreciable property about
two years ago, you may also come out ahead because the depreciation
recapture rate is 25%, but when you were depreciating you may have been
taking the depreciation deduction against income in a higher bracket
like 28% or 33%.

Of course as noted elsewhere in this thread, that won't help with the
winner of this plane because you can't take depreciation against an
asset you got for free.

[TaxSrv]

"Ron Natalie" wrote:
> > The IRS has no basis in case law to enforce MSRP on a car,
>
> Sorry Fred, but if you are really a tax expert, you should do
> some research into the issue. The MSRP *IS* what the IRS
> values a new car winning as.

Just where do I begin to research such a unique exception to basic
principles of property valuation? It ain't in statute, and
therefore not in Regs. Perhaps a Tax Court judge ruled once this
way because no one ever told him he doesn't really have to pay
sticker for his cars?

What is true is that prize-awarding organizations, who often don't
pay street retail for it, place MSRP on the 1099 because they feel
they have no way to determine average retail price. Fair enough.
But nowadays they have edmunds.com for a pretty fair, if not a bit
high, street value by region and even color. They just have to
convince themselves that's acceptable for IRS reporting.

Fred F.

[TaxSrv]

> wrote:
> Of course as noted elsewhere in this thread, that won't help with
the
> winner of this plane because you can't take depreciation against
an
> asset you got for free.
>

Your basis is the amount included in income on Form 1040.

Fred F.

[Peter R.]

"Robert M. Gary" > wrote:

> Why buy it from the recipient? Why not just pick up trade-a-plane and
> buy a plane? If your corp is going to buy a plane, winning one by the
> owner doesn't effect anything. The owner still pays all taxes from the
> winning.

Not if the s-corp owner and the winner are the same person.

--
Peter

[Peter R.]

"Robert M. Gary" > wrote:

> BTW: In California we have a minimum tax for S-corps, C-corps, LLC, etc
> of $800/yr. You would have to pay the $800/yr for the privilege of
> being incorporated.

If incorporated in CA, or incorporated in any state? Without knowing the
answer, my guess would be the latter, right? :)

--
Peter

[Peter R.]

> wrote:

> Sure, for the s-corp. But the recipient will still have to pay taxes
> on the FMV of the plane that she received for free and sold to the
> s-corp.

I agree that the owner will owe taxes on the winning aircraft.

However, assuming the winning recipient of the AOPA aircraft is also the
owner of the s-corp, then any tax benefit (aka tax over-payment refund)
that the s-corp receives from accelerated aircraft depreciation can be
passed through to the recipient's individual return, thus negating most of
the income tax owed on winning the aircraft, correct?

I am looking at the overall net affect (check sent to the IRS) of such a
transaction, not the impact of each tax event taken separately.

--
Peter

[Peter R.]

"Robert M. Gary" > wrote:

> Why buy it from the recipient? Why not just pick up trade-a-plane and
> buy a plane? If your corp is going to buy a plane, winning one by the
> owner doesn't effect anything. The owner still pays all taxes from the
> winning.

Sorry, my original response was a result of reading your quote above too
fast. After understanding your comment, I should point out that the goal
of such a transaction would be to minimize the net income tax owed to the
IRS that year, not simply to acquire an aircraft.

--
Peter

[TaxSrv]

"sfb" > wrote in message
news:H3Fif.3507$P33.1126@trnddc01...
> IRS pub 561 puts the responsibility for the appraisal on you
> and the IRS is not obligated to accept the appraisal without
> question. Despite the magic of the 1998 act, the taxpayer still
> retains much of the burden of burden of proof with regard to
> fair market value.
>

Since when is an IRS Pub legal authority vs. mere plain-language
guidance? The burden will indeed shift to IRS at some point in the
dispute process.

Of practical significance is where the t/p secures an appraisal to
determine the amount to be reported, but the 1099 has significantly
more. If the IRS audits and determines that AOPA didn't use an
appraisal for the 1099, then I'm afraid they don't have much of a
case. They may try to argue that AOPA knows airplanes, but that
doesn't make them a qualified appraiser. Sounds like favorable
settlement material to me.

Fred F.

[Robert M. Gary]

Depends on the state you live in. Each winner would have to look at the
incorporation cost of their own state. In California its $800/yr. I
believe New York is similar. AZ and NV don't tax it at all. In
otherwords, as an example, California charges $800/yr, you may want to
check your state.

[Robert M. Gary]

But I'm not sure how this is helping. I win an airplane and have to pay
tax on the value. I then sell it to my corp, receive a check from my
corp and pay the tax. I guess I don't see the difference. If you are
trying to sell it to your corp for less than FMV then I believe the IRS
provides jail terms for such fancy book work designed to avoid paying
tax. The legal word for this is "arm's length transaction". Even if you
"gift" the plane to your corp, you are required to report it as FMV as
if it was an "arm's length transaction" (i.e. you told it to someone
you didn't know.)

-Robert

[Peter R.]

"Robert M. Gary" > wrote:

> I then sell it to my corp, receive a check from my
> corp and pay the tax. I guess I don't see the difference. If you are
> trying to sell it to your corp for less than FMV then I believe the IRS
> provides jail terms for such fancy book work designed to avoid paying
> tax.

Robert, the goal here is not to avoid the income tax and tread illegal
waters as you deduced, but rather to legally use the tools of the tax code
to create an expense (accelerated depreciation) large enough to offset most
of the income tax due on the winnings.

Again, the big picture goal is to significantly reduce the size of the
check that the winner has to send to the IRS on April 15th of the following
year.

Of course, come the date of the sale of aircraft some time in the future,
any accelerated depreciation will be recaptured by the IRS in the form of a
capital gains tax, but this is only a straight 20% tax versus an individual
income tax bracket of normally a 32% to 40% tax (depending on one's taxable
income).

--
Peter

[TaxSrv]

"Robert M. Gary" wrote:
> Even if you "gift" the plane to your corp, you are required
> to report it as FMV as if it was an "arm's length transaction".

Not if in exchange for stock as is the normal case. Called a
"section 351 transfer."

Fred F.

[john smith]

In article t>,
"Roy Page" > wrote:

> This is an interesting discussion I would like to see what the consensus
> think this AOPA bird is really worth.
>
> The lower powered 112 does not sell as well as the 114 but just a few hours
> since SMOH, new paint and nice new interior may have the AOPA birds value up
> to around $100,000.
> Now add the turbo normalize, and all the fancy new instruments and avionic
> glass might add say $50,000.
> So I will start the ball rolling and say it will be worth about $150,000 on
> the open market.

Too high!
$110k - $120k

[TaxSrv]

"Peter R." wrote:
> ... any accelerated depreciation will be recaptured by the IRS in
the
> form of a capital gains tax, but this is only a straight 20% tax
versus
> an individual income tax bracket of normally a 32% to 40% tax.

Any and all depreciation, not just accelerated, is recaptured at
ordinary rates, not capital gains rates. Also, the aircraft has to
be used in an actual trade or business in order to depreciate it.

Fred F.

[Peter R.]

TaxSrv > wrote:

> Any and all depreciation, not just accelerated, is recaptured at
> ordinary rates, not capital gains rates.

And what is the ordinary rate? A fixed rate or one that is variable based
on income?

> Also, the aircraft has to
> be used in an actual trade or business in order to depreciate it.

Of course. Again, I was never proposing anything illegal. Actually, my
original proposal was followed by a smiley, implying I wasn't overly
serious about it, but I and others quickly discarded or ignored that
intention.

--
Peter

[TaxSrv]

"Peter R." wrote:
> > Any and all depreciation, not just accelerated, is recaptured
at
> > ordinary rates, not capital gains rates.
>
> And what is the ordinary rate? A fixed rate or one that is
variable based
> on income?

Same as on other income like wages, and depending upon one's
taxable income. The marginal tax rates vary between 10 and 35%.

Fred F.

[Peter R.]

TaxSrv > wrote:

> Same as on other income like wages, and depending upon one's
> taxable income. The marginal tax rates vary between 10 and 35%.

Ok, how about this: When it comes time to sell the winning aircraft (and
face potential capital gains and depreciation recapture, of which I was
previously unaware - tnx, Fred), the winner purchases another business
aircraft that qualifies for a 1031 like-kind aircraft exchange, then does
not aggressively depreciate the second aircraft.

Would that indefinitely defer the depreciation recapture of the winning
aircraft?

--
Peter

[Robert M. Gary]

But if its a holding company designed simply to own the airplane (as
was the original thread) then you already own all the stock. I just
don't see incorporating helping you in anyway other than actually using
the plane for a business and being able to capture the depreciation
quicker (Time Value of Money gain, i.e. its better to have a dollar
today than tomorrow ).

-Robert

[TaxSrv]

"Peter R." wrote:
>...the winner purchases another business aircraft that
> qualifies for a 1031 like-kind aircraft exchange, then
> does not aggressively depreciate the second aircraft.
>
> Would that indefinitely defer the depreciation recapture
> of the winning aircraft?
>

Yes it will, if one finds a "qualified intermediary" for purpose of
section 1031 willing to get involved in aircraft deals and seller
doesn't mind that complication. However, there may be little to
aggressively depreciate after the exchange.

Fred F.

[George Patterson]

Robert M. Gary wrote:
> Depends on the state you live in. Each winner would have to look at the
> incorporation cost of their own state. In California its $800/yr. I
> believe New York is similar. AZ and NV don't tax it at all. In
> otherwords, as an example, California charges $800/yr, you may want to
> check your state.

I'm still unsure what you mean, so I'll get specific. What if a Californian
incorporates in Delaware? Will California still assess the $800/year tax?

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

[George Patterson]

john smith wrote:

> Too high!
> $110k - $120k

You guys remind me of the airport bums who argued vehemently that Cessna would
never be able to get $125,000 for a new 172.

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

[Marty Shapiro]

George Patterson > wrote in
news:AmRif.565$gi3.458@trndny09:

> Robert M. Gary wrote:
>> Depends on the state you live in. Each winner would have to look at
>> the incorporation cost of their own state. In California its $800/yr.
>> I believe New York is similar. AZ and NV don't tax it at all. In
>> otherwords, as an example, California charges $800/yr, you may want
>> to check your state.
>
> I'm still unsure what you mean, so I'll get specific. What if a
> Californian incorporates in Delaware? Will California still assess the
> $800/year tax?
>
> George Patterson
> Coffee is only a way of stealing time that should by rights
> belong to your slightly older self.

If you conduct business in California (like base the aircraft in the
state), you will have to register as a "foreign" corporation which incurs
the same $800 tax. When we incorporated our aircraft, we looked into doing
it in Nevada, but found out we would still have to pay this tax and would
also need to maintain a Nevada address.

--
Marty Shapiro
Silicon Rallye Inc.

(remove SPAMNOT to email me)

[Mike Rapoport]

"Peter R." > wrote in message
...
> TaxSrv > wrote:
>
>> Same as on other income like wages, and depending upon one's
>> taxable income. The marginal tax rates vary between 10 and 35%.
>
> Ok, how about this: When it comes time to sell the winning aircraft (and
> face potential capital gains and depreciation recapture, of which I was
> previously unaware - tnx, Fred), the winner purchases another business
> aircraft that qualifies for a 1031 like-kind aircraft exchange, then does
> not aggressively depreciate the second aircraft.
>
> Would that indefinitely defer the depreciation recapture of the winning
> aircraft?
>
> --
> Peter

Why wouldn't you depreciate that airplane too?

Mike
MU-2

[TripFarmer]

OK, the IRS says in Reg Sec. 1.74-1(a)(2) that the "taxable amount is the
prize's current Fair Market (resale) Value (FMV)". This is in Section 1384
of RIA's Federal Tax Handbook for 2005. So, you would be able to use a
competent Appraiser's appraisal for valuation purposes. Be forewarned that
you will probably be audited so you'd better have used a good appraisal.


Trip

[Robert M. Gary]

Yes. California has "like taxes" for all our residence taxes. So if you
have a California corp you pay $800/yr "minimum franchise tax". If you
have an out of state company but do business in California we have a
"Foreign Corp" tax of....guess what.... $800/yr minimum.

Its just like sales tax. If you buy something in California you pay
about 8% sales tax. If you buy it out of state but bring it to
California you pay about 8% "use tax".

They'll get you either way. There are lots of stories of people setting
up corps in California and then not using them for anything. At some
point the state finds out about them and goes after them for $800/yr
plus interest/penalities/etc. Even though the corp never actually did
business in California.

BTW: All this applies the same for LLCs and the old fashion, never used
anymore, s-corps.

-Robert

[Robert M. Gary]

The legal term for that is "arm's lenght transaction". A corp must
report the sale as if you had sold or bought it from a stranger (i.e.
special prices between friends don't effect the reporting).

[[email protected]]

The bottom line is AOPA writes off a value of the airplane and all of
the other contributers write off the value of their donations on their
taxes. The IRS passes it on and guess what, if you are the lucky
winner, you are it. Just a good example of how the cost of government
is pushed down the hill to the little man.

Lyn N2759P

[sfb]

Same old, same old. This post seems perpetuate the myth that busyness
pay taxes. They do not. All they do is collect taxes from their
customers.

> wrote in message
oups.com...
> The bottom line is AOPA writes off a value of the airplane and all of
> the other contributers write off the value of their donations on their
> taxes. The IRS passes it on and guess what, if you are the lucky
> winner, you are it. Just a good example of how the cost of government
> is pushed down the hill to the little man.
>
> Lyn N2759P
>

[TaxSrv]

> wrote in message >
> The bottom line is AOPA writes off a value of the airplane
> and all of the other contributers write off the value of their
> donations on their taxes. The IRS passes it on and guess
> what, if you are the lucky winner, you are it. Just a good
> example of how the cost of government is pushed down
> the hill to the little man.
>

Tax-exempt organizations like AOPA don't really "write off anything" for
tax advantage, since they pay no tax. A vendor may contribute say
avionics to get advertising value out of the promotion, but their tax
deduction is only the manufacturing cost of the avionics. IOW, your tax
analysis is not even close to reality.

Fred F.

[George Patterson]

TaxSrv wrote:

> A vendor may contribute say
> avionics to get advertising value out of the promotion, but their tax
> deduction is only the manufacturing cost of the avionics.

Another way to put this is that they get no deduction at all, since all
manufacturing costs are written off as expenses. The donation simply reduces
their income beyond what it would've been had they sold the equipment.

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

[john smith]

New related question...
As AOPA flies the give-away airplane around prior to presenting it to
the prize winner, how much of the value can be depreciated prior to
awarding/accepting the prize?

[Mike Spera]

How about if you put it up on e-bay with a $10,000 minimum and make the
hidden reserve $750,000. The low ballers will creep bid the thing up to
$40,000 and some sniper will bid another $10,000 in the final seconds.
Auction ends with the highest bid at $50,000, but you don't have to sell
it because they don't make the reserve. Fair Market Value? Why not?
Doubts about a one-time auction? Do it twice and average the 2 highest
ending bids. Lower the reserve on the second auction to $740,000. You
followed ALL the rules.

I don't believe e-bay auctions have ever been used to establish FMV.
What better way short of actually selling the beast can you establish
what the public will pay????? With a house, the appraiser's opinion does
not mean a hill of beans. The selling price establishes value.

Holes in this theory?(I'm sure there are PLENTY).
Thanks,
Mike

[sfb]

FMV requires a willing buyer and seller and this seller doesn't sound
like a willing. Getting buyers to lowball bids proves nothing.

"Mike Spera" > wrote in message
ink.net...
>
>
> How about if you put it up on e-bay with a $10,000 minimum and make
> the hidden reserve $750,000. The low ballers will creep bid the thing
> up to $40,000 and some sniper will bid another $10,000 in the final
> seconds. Auction ends with the highest bid at $50,000, but you don't
> have to sell it because they don't make the reserve. Fair Market
> Value? Why not? Doubts about a one-time auction? Do it twice and
> average the 2 highest ending bids. Lower the reserve on the second
> auction to $740,000. You followed ALL the rules.
>
> I don't believe e-bay auctions have ever been used to establish FMV.
> What better way short of actually selling the beast can you establish
> what the public will pay????? With a house, the appraiser's opinion
> does not mean a hill of beans. The selling price establishes value.
>
> Holes in this theory?(I'm sure there are PLENTY).
> Thanks,
> Mike

[Mike Spera]

O.K. How do you indicate your willingness to sell? Maybe, put it up for
sale via auction and then go through it to the end (multiple times)? You
pay the e-bay fees. What more might you need to do to show you are
trying to sell the beast?

Willing buyers? Well, bidding on e-bay is a contract. Regardless of the
size of the bid, the act of bidding in a binding auction might show
willingness. No?

Other opinions?
Mike

> FMV requires a willing buyer and seller and this seller doesn't sound
> like a willing. Getting buyers to lowball bids proves nothing.
>
> "Mike Spera" > wrote in message
> ink.net...
>
>>
>>How about if you put it up on e-bay with a $10,000 minimum and make
>>the hidden reserve $750,000. The low ballers will creep bid the thing
>>up to $40,000 and some sniper will bid another $10,000 in the final
>>seconds. Auction ends with the highest bid at $50,000, but you don't
>>have to sell it because they don't make the reserve. Fair Market
>>Value? Why not? Doubts about a one-time auction? Do it twice and
>>average the 2 highest ending bids. Lower the reserve on the second
>>auction to $740,000. You followed ALL the rules.
>>
>>I don't believe e-bay auctions have ever been used to establish FMV.
>>What better way short of actually selling the beast can you establish
>>what the public will pay????? With a house, the appraiser's opinion
>>does not mean a hill of beans. The selling price establishes value.
>>
>>Holes in this theory?(I'm sure there are PLENTY).
>>Thanks,
>>Mike
>
>
>

[Bob Fry]

>>>>> "MS" == Mike Spera > writes:

MS> Holes in this theory?(I'm sure there are PLENTY).

No transaction took place, so the market value was never established.
Bzzzzztt!!!