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Aircraft Purchase and Sale Transactions. AOPA

2.

Featured Presenter
Ray Speciale
Attorney
AOPA Legal Services Plan
CPA, Commercial Pilot, CFII
[email protected]
301.695.2249
©2020 Aircraft Owners and Pilots Association

Scope Of Presentation
• Focus will be on typical general aviation aircraft transactions
• Aircraft expected to be used for personal and/or business purposes
• Limited to transactions involving aircraft that are US registered
• AOPA Legal Services Plan coverage for aircraft buy-sells
©2020 Aircraft Owners and Pilots Association
Page 1 of 22

4.

Presentation Overview
• Segment 1: Ownership Structure
• Segment 2: Tax Issues
• Segment 3: The Buy-Sell Agreement
• Segment 4: Closing Logistics
©2020 Aircraft Owners and Pilots Association
Page 2 of 22

5.

Ownership Structure
How will aircraft be registered?
• Individual
• Partnership
• Corporation
• Co-owner
• Limited Liability Company (LLC)
• Non-Citizen Corporation
• Non-Citizen Corporation Co-Owner
©2020 Aircraft Owners and Pilots Association
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6.

Ownership Structure
U.S. registered aircraft must (1) not be registered under laws of any
foreign country and (2) be owned by:
• U.S. citizen [14 C.F.R. § 47.3 (a)(1)]
• U.S. resident alien [14 C.F.R. § 47.3 (a)(2)]
• Non-U.S. citizen corporation with aircraft based and primarily used
in U.S. [14 C.F.R. § 47.3 (a)(3)]
• Governmental Unit [14 C.F.R. § 47.3 (a)(4)]
©2020 Aircraft Owners and Pilots Association
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7.

Ownership Structure
U.S. citizen defined:
1.
2.
3.
Individual who is citizen of U.S. or U.S. possession [14 C.F.R. § 47.2
(1)] .
Partnership of which each individual is a citizen of U.S. [14 C.F.R. §
47.2 (2)].
Corporation or association organized in U.S. with (1) president and
2/3 or more of BOD and managing officers U.S. citizens and (2) 75
percent of voting interest held by U.S. citizens [14 C.F.R. § 47.2 (3)].
©2020 Aircraft Owners and Pilots Association
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8.

Ownership Structure
Resident alien definition:
“…means an individual citizen of a foreign country lawfully admitted
for permanent residence in the United States as an immigrant in
conformity with the regulations of the Department of Homeland
Security (8 CFR Chapter 1)” [14 C.F.R. § 47.2].
©2020 Aircraft Owners and Pilots Association
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9.

Ownership Structure
Non-U.S. citizen corporation:
Aircraft must be “based and primarily used in the U.S.” [14 C.F.R. §
47.3 (a)(3)
Flight hours in U.S. must amount to at least 60 percent of total
flight hours measured in six month intervals [14 C.F.R. § 47.9 (b)]
Flight hours reported in six month intervals using FAA Form AC
8050-117 (FAA sends pre-printed form every six months) [14 C.F.R.
§ 47.9 (f)].
©2020 Aircraft Owners and Pilots Association
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10.

Ownership Structure
Non-U.S. citizen registration when aircraft will not be based and used
primarily in U.S.:
• U.S. citizen or resident alien trustee [14 C.F.R. § 47.7 (c)]. See F.R.
Notice (Vol. 78, No. 117, Tuesday, June 18, 2013, page 36412) and AFS751 Information Bulletin 13-01
• Voting trust [14 C.F.R. § 47.8]
©2020 Aircraft Owners and Pilots Association
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11.

Ownership Structure
Special considerations for LLCs (see also FAA REGAR-LLC-1):
Need for special statement for registration including:
• Full name of LLC;
• State in which LLC organized;
• Date LLC formed or organized;
• Name of LLC members and their type of entity (individual, corp., LLC, etc.);
• Whether LLC is manager or member managed;
• Name of managers or members responsible for registration application;
• Statement as to whether members, managers, officers can act
independently;
• How does each member support that LLC is citizen pursuant to 49 USC
40102(a)(15).
Note: Special statement required for LLCs. LLCs not defined or recognized in 49 USC 40102(a)(15)
©2020 Aircraft Owners and Pilots Association
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12.

Ownership Structure
FAA guidance relevant to entity ownership of aircraft:
See:
Dymond-Moore & Van Allen PLLC, March 9, 2007;
James E. Cooling, August 22, 2017; and
Lawrence Williams, December 14, 2017.
FAA AC 91-37B (02.10.2016)
©2020 Aircraft Owners and Pilots Association
Page 9 of 22

13.

Tax Issues
Sales and Use Tax Considerations (Usually Buyer Issue):
What is intended delivery location?
Do any exemptions exist (e.g.—”flyaway” exemption)?
Does use tax apply?
Any applicable exemptions to use tax (e.g.—purchase for resale,
interstate commerce, casual sale, etc.)?
• Consider credits provided for sales/use taxes previously paid to
other jurisdictions.
©2020 Aircraft Owners and Pilots Association
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14.

Tax Considerations
Income Tax Considerations (Usually Seller Issue):
• Was aircraft used to further trade or business?
• If so, how much depreciation allowed or allowable? [See IRS Pub.
946 and Rev. Proc. 2007-16 and IRS Form 3115 for “catch-up.”
provision if depreciation not previously deducted].
• Recapture rules found IRC Sections 1245 and 1231.
• Recapture may be offset by current provisions for bonus
depreciation found in IRC Sec. 168(k).
©2020 Aircraft Owners and Pilots Association
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15.

Buy-Sell Agreement
• Written buy-sells typically required pursuant to UCC Sec. 2-201
(agreement for sale of goods greater than $500 not enforceable unless
evidenced by sufficient writing signed by party against whom
enforcement sought).
• Link to sample buy/sell agreement:
https://pilot-protection-services.aopa.org/news/sample-legal-documents
• String of emails may be sufficient. See “Deal or No Deal” by Tad
Wintermeyer, Esq.
https://pilot-protection-services.aopa.org/news/2016/march/22/deal-or-no-deal
©2020 Aircraft Owners and Pilots Association
Page 12 of 22

16.

Buy-Sell Agreement
Escrow. It is agreed that within
(__) business days after
execution of this agreement an escrow account will be established
with escrow agent [ at Buyer's sole discretion] [ at Seller's sole
discretion] [ agreeable to both parties]. All funds, including the
deposit, and the following documents pertaining to this transaction,
shall be transmitted through the escrow account: (a) Bill of sale for
the Aircraft from Seller to Buyer; and (b) Application for
Registration of the Aircraft to Buyer. The fees for the escrow service
shall be [ paid by the Buyer] [ paid by the Seller] [ split evenly
between Buyer and Seller].
©2020 Aircraft Owners and Pilots Association
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17.

Buy-Sell Agreement
Deposit. The Buyer shall pay a deposit of________Dollars
($
) in to the escrow account immediately upon the
establishment of that account. The deposit is [ non-refundable
unless otherwise stipulated in this agreement] [ fully refundable to
Buyer except as otherwise stipulated herein]. The deposit shall be
credited to the purchase price of the Aircraft.
©2020 Aircraft Owners and Pilots Association
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18.

Buy-Sell Agreement
Pre-purchase Inspection. After the signing of this Agreement and the
payment of the deposit into escrow, the Buyer shall have the right to
perform a pre-purchase inspection of the Aircraft. Such inspection shall
be at the Buyer's expense and may be performed by a individual(s) of
Buyer's choice, so long as he/she/they hold current Airframe and
Powerplant mechanic certificates issued by the Federal Aviation
Administration. The inspection shall be performed at
Airport.
©2020 Aircraft Owners and Pilots Association
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19.

Buy-Sell Agreement
Alternative Clauses to Pre-Purchase Inspection
[If the Buyer does not perform or have this inspection performed within
(__) days of the signing of this Agreement, then Buyer shall be
deemed to have waived his/her/its right to such inspection].
[Upon completion of this inspection, Buyer shall have_____(__) days to
notify Seller that he/she/they will not purchase the Aircraft. If Buyer elects
not to purchase the Aircraft, the Buyer shall notify Seller in writing of this
decision. Upon receipt of such notice, Seller shall return, or have returned,
within________(__) days, to Buyer all payments made by Buyer, except for
the deposit].
©2020 Aircraft Owners and Pilots Association
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20.

Buy-Sell Agreement
Alternate Clause to Pre-Purchase Inspection:
Upon completion of this inspection, Buyer shall present to the Seller any
list of discrepancies compiled. The Seller shall have______(__) business
days to review the list and to notify the Buyer of Seller's decision: (a) to
pay to have the [discrepancies] [discrepancies affecting the
airworthiness of the Aircraft] repaired at Seller's expense and to
complete the sale; or (b) to decline to pay the costs of repairs and to
terminate the Agreement. If Seller declines to pay the cost of repairs,
Seller shall refund, or have refunded, the Buyer's deposit and shall
reimburse the Buyer for the cost of the pre-purchase inspection.
©2020 Aircraft Owners and Pilots Association
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21.

Buy-Sell Agreement
Warranties. Alternative clauses for this section:
[ Except as provided otherwise in this agreement, this Aircraft is sold
"as is." There are no warranties, either express or implied with respect
to merchantability or fitness applicable to the Aircraft or any
equipment applicable thereto including warranties as to the accuracy
of the Aircraft's logbooks, made by Seller. Buyer agrees that no
warranty has been expressed or implied by Seller and that Buyer has
inspected the Aircraft and understands that it is being purchased "as
is." Buyer hereby expressly waives any claim for incidental or
consequential damages, including damages resulting in personal injury
against Seller].
Or…
©2020 Aircraft Owners and Pilots Association
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22.

Buy-Sell Agreement
[ Seller warrants that to the best of Seller’s knowledge: (a) the Aircraft
is in airworthy condition; (b) the Aircraft has a current annual
inspection; (c) the Aircraft has a currently effective Standard Category
airworthiness certificate issued by the Federal Aviation Administration;
(d) all of the Aircraft's logbooks are accurate and current; (e) all
applicable Airworthiness Directives have been complied with;
(f)________________.]
©2020 Aircraft Owners and Pilots Association
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23.

Buy-Sell Agreement
Governing Law. This Agreement is a contract executed under and to be
construed under the laws of the State of _ . The parties agree that
any disputes related to this Agreement shall be subject exclusively to
the jurisdiction of the _______ courts in the county of _____, ___.
Attorney Fees. In the event any action is filed in relation to this
Agreement, [ the unsuccessful party in the action shall pay to the
successful party a reasonable sum for the successful party's attorney's
fees] [ each party shall be responsible for his/her/its own attorney's
fees].
©2020 Aircraft Owners and Pilots Association
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24.

Closing Logistics – Stage 1
Buyer’s
Bank
Buyer
Wire transfer
deposit and send
FAA registration
application
Wire funds
financed by
buyer and lien
documents
Escrow Agent
FAA Bill of Sale
Seller
©2020 Aircraft Owners and Pilots Association
Lien release
Seller’s
Bank
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25.

Closing Logistics – Stage 2
Seller’s
Bank
Seller
Net sale proceeds
Funds to release lien
Escrow Agent
1.
2.
3.
4.
Lien for buyer’s bank
Bill of Sale
Registration Application
Release of lien by seller’s bank
FAA
Registry
©2020 Aircraft Owners and Pilots Association
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27.

Contact Us!
AOPA Legal Services Plan
421 Aviation Way
Frederick, MD 21701
301.695.2400
[email protected]
Monday - Friday
8:30am - 6pm Eastern
©2020 Aircraft Owners and Pilots Association
Website:
www.aopa.org/pps
Provider Information and Helpful Links:
https://pilot-protectionservices.aopa.org/for-providers-only

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