Verdict finds Flight Options liable for $24 million in unpaid taxes

An Ohio court has ordered Flight Options, LLC, to pay $24.03 million in taxes for management fees associated with its dormant fractional ownership program.

The ruling was an apparent double whammy.

The company was also denied a refund request for nearly $18 million it had asserted was wrongly paid to the Internal Revenue Service.

The unpaid taxes occurred before March 31, 2012, according to court documents.

The verdict is the result of a bench trial that was held from September 23 to 26, 2024.

The parties then submitted post-trial briefings on evidentiary issues, as well as proposed findings of fact and conclusions of law, to the United States District Court for the Northern District of Ohio, Eastern Division.

Flight Options filed its complaint seeking a refund on April 15, 2016.

According to the court documents, it sought a refund of $20.5 million in federal excise tax.

It had collected the tax from its customers and paid the Internal Revenue Service.

The payments covered tax years 2009 through 2011 and the first quarter of 2012.

The former fractional flight provider further sought a ruling abating nearly $18 million in excise tax that the IRS had assessed but which it had not paid, as well as failure-to-pay penalties of over $390,000 that the IRS had assessed on that alleged tax obligation.

The disputed tax was related to monthly management fees.

The Flight Options brand is not currently active.

It is owned by Directional Aviation, which also owns Flexjet.

Flight Options was founded by Directional Aviation Principal and Flexjet, Inc. Chairman Kenn Ricci in 1998.

After selling a controlling interest to Raytheon in 2002, Ricci regained control of Flight Options in 2007.

In 2013, Directional bought Flexjet from Bombardier.

It subsequently phased out Flight Options.

Flight Options Response

A spokesperson tells Private Jet Card Comparisons, “This case has languished for more than a decade through no fault of Flight Options.”

The spokesperson adds:

‘The law in place during the tax periods in question was rendered moot by a change in the applicable tax law in 2012, which provided a much clearer method for determining the taxation of fractional aviation operations. As a result, the conclusions of this case have no impact on the future operations of Flight Options or any other fractional aviation program. For the periods in question, the IRS has not required any competitors of Flight Options to pay this tax and instead has unfairly targeted Flight Options. Flight Options disagrees with the Court’s decision, and we are assessing our options for appeal.’

Flexjet is currently the second-largest charter and fractional operator in North America.

Law360 was the first to report the news of the verdict.