NAFA member Nel Stubbs, Principal at Stubbs Aviation Advisors, shares her article on interchange agreements and applicable federal excise taxes.
IRS treatment of interchange agreements can be very involved, and they do not become any easier when aircraft operators try to optimize their aircraft’s usage through an interchange agreement.
The Federal Aviation Regulations under FAR Part 91.501(c)(2) define an interchange agreement as: An arrangement whereby a person leases his airplane to another person in exchange for equal time, when needed, on the other person's airplane and no charge, assessment or fee is made, except that a charge may be made not to exceed the difference between the cost of owning, operating and maintaining the two airplanes.
As with a number of situations, the FAA and the IRS are not necessarily in agreement with each other in their opinions on whether an interchange agreement is noncommercial or commercial transportation. The FAA allows an interchange agreement to be conducted under FAR Part 91. Therefore, for FAA purposes, as long as the truth-in-leasing requirements of FAR 91.23 are met, an interchange agreement is considered noncommercial transportation.
However, the IRS considers this type of operation commercial. It does not matter that there is not a profit motive or a profit made, the fact of the matter is that the aircraft has been made available for compensation or hire and the amounts paid for this activity are subject to the 7.5 percent (7.5%) commercial transportation ticket tax, plus a $5.30 (as of 1/1/2026, adjusted annually) per person per leg segment fee.
This article was originally published by Stubbs Aviation Advisors on August 14, 2026.