Politicians on Business Jets Could Land in Hot Water

810taxes_pol-on-board2By Jeff Wieand

Maybe you’re an aircraft owner who’d like to offer transportation to a political candidate you support. Or perhaps you’re a candidate who wants to grab a ride on a friend’s business jet. Either way, you’d be well advised to do some homework first, regarding the federal and state rules that apply to such flights.

A candidate’s trip on a private or corporate aircraft can constitute acceptance of illicit campaign contributions or gifts, and the fallout can be harsh, especially since non-compliance with the rules can attract the attention not only of regulators but of the media. During the months before the last U.S. presidential election, for example, a New York Times story questioned whether Rick Perry’s $21,000 payment was sufficient for use of a Citation X belonging to a Texas businessman (described by the paper as “under investigation by federal securities regulators”). The Times obtained a $60,000 estimate from a third-party charter operator for the same flights that Perry took, raising the issue of whether he was in effect receiving a significant unreported campaign contribution.

Since 2016 is another presidential election year, companies and politicians across the U.S. are struggling again with the complicated rules for carrying candidates for public office and their associates on private jets. The complexity begins with determining to whom the rules apply, because they variously relate to elected officials, family members, campaign staffers, reporters, security personnel, leaders of political action committees, and others. Further, the rules vary depending on whether the aircraft is private, commercial, or government-owned. Finally, you can’t pay attention to just one set of rules; there are many sets of rules, which aren’t always consistent and which keep changing.

The Federal Election Act of 1971 governs what candidates for federal office must pay for private air transportation. The Act was amended by the so-called Honest Leadership and Open Government Act, which took effect in 2007, but the Federal Election Commission caused considerable confusion for candidates and aircraft owners by failing to follow up with new regulations until 2010.

The FEC rules prohibit candidates for the U.S. House of Representatives from using campaign funds to pay for travel on aircraft not operated on a commercial certificate, which basically bars them from accepting free travel on private aircraft unless operated by a charter company. (The rules generously allow the House candidates to use campaign funds to pay for flights on their own aircraft or those of family members, as well as aircraft owned by the federal or a state government.) On the other hand, candidates for more illustrious offices—president, vice president, and senator—are simply required to reimburse the flight provider at the normal and usual charter fare (or rental charge) for the trip on comparable aircraft. Thus, the FEC no longer allows reimbursement to be calculated based on scheduled first-class or coach service.

The FEC views all elected officials as candidates, which isn’t entirely unrealistic, and requires them to file reports about air travel with the Commission within seven days after the trip. In addition, the FEC requires aircraft operators to maintain records that show what candidates they transported on what dates and between what locations. If more than one candidate is on the same flight, the rules allow for expenses to be shared pro rata.

To see how this would work, suppose Bill and Bob, two candidates for the U.S. Senate, fly in Mr. Smith’s Gulfstream G450 from Teterboro, New Jersey to Chicago and back. Bill brings along two campaign officials, while Bob flies alone. Let’s assume the round-trip flight time is four hours. Mr. Smith’s aircraft isn’t on a charter certificate, but a typical G450 charter rate at Teterboro, including the fuel surcharge, is approximately $7,000 an hour, so Bill and Bob would have to pay $28,000 for the trip. (If charter rates for a G450 weren’t available, the candidates could look to rates for “comparable” models.) They would then share the cost in a ratio of 3:1, based on the number of passengers traveling for each campaign.

This brings us to the next layer of regulation. The IRS regards the flights as “commercial” for tax purposes because the candidates are paying Mr. Smith, who has what the IRS calls “possession, command, and control” of the aircraft. Consequently, the candidates would also have to pay the 7.5 percent transportation excise tax, which adds $2,132 to the cost of the trip when the $4 segment fee is included.

Because the candidates are paying Mr. Smith, the flight is “commercial” for FAA purposes as well. But remember that Mr. Smith’s G450 isn’t on an FAA charter certificate; he is operating the aircraft under Part 91, which doesn’t generally permit payments for flights. Fortunately for Mr. Smith, the FAA recognized that federal law required candidates and campaign travelers for federal office to pay for flights on aircraft operated under Part 91, and it created a regulatory exception to permit such payments—in an amount not to exceed what the FEC requires. Note that if Mr. Smith’s aircraft were on a charter certificate, the FAA would expect him to operate (and charge for) the flights under Part 135, and FEC rules would allow candidates for the House to fly on his aircraft as well.

FAA rules also permit state and local candidates to pay for air transportation to the extent required by applicable state or local law. Reimbursement may be prohibited if the flight isn’t specifically for a campaign, such as travel by an elected official on the business of the political party, notwithstanding what ethics rules or applicable law require.

Many government agencies, including both the U.S. House and Senate, have enacted ethics rules regarding the conduct of members who pay for air travel. These rules apply only to elected officials, not to candidates who aren’t already serving. The main  questions raised by such rules are:

• Am I allowed to fly on privateor non-commercial aircraft?

• If so, do the rules require that I pay for the flight?

• And if so, does the FAA permit me to make the payment?

The House rules, for example, prohibit members from using official, personal, or campaign funds to pay for use of non-commercial aircraft. An exception applies for certain flights “provided on the basis of personal friendship” when House business or campaign activity isn’t the purpose of the trip, but even then the member must in most cases get permission from the Committee on House Administration.

The consequences of failing to comply with the rules for carrying elected officials and candidates vary widely. The aircraft owner can be fined by the FAA, which could also ground the aircraft. For candidates, federal and state penalties include fines (the FEC helps out with a “fine calculator” at fec.gov) and even imprisonment for egregious violations. For many candidates, though, the biggest penalty can be the negative publicity and the impact on their electability that can result from violations. It’s worth paying attention.FAA_Logo.5aabef01563d7.jpg


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