IRS erased key records in lawsuit, NetJets says

Steve Wartenberg, The Columbus Dispatch
NetJets has been in a dispute with the IRS since 2011.

October 1, 2014

In the midst of a lawsuit with the federal government over tax payments, NetJets claims that the Internal Revenue Service destroyed documents important to the case.

The Columbus-based private-jet company, in a motion filed with U.S. District Judge Edmund A. Sargus Jr., said the IRS "wiped clean a number of computer hard drives containing emails and other electronic documents that the Government was required to produce."

These records supported several NetJets arguments, according to the filing, and the attorneys for the company asked the judge to dismiss the IRS' recent request for a summary judgment in its favor.

NetJets initially sued the Internal Revenue Service for $642.7 million in November 2011, claiming the government improperly applied a ticket tax on users of its aircraft that is meant for commercial airline passengers.

The federal government countersued NetJets on March 8 for $366.3 million, stating that the company "has failed, neglected or refused to pay its federal tax liabilities ... in full."

NetJets petitioned the court for a summary judgment in its favor earlier this year.

The IRS followed with a similar request for a summary judgment in August, stating that NetJets was liable for the user tax because its operations are not "exempt from the excise tax imposed on amounts paid for transportation of persons by air."

Congress amended the tax code in 2012, clarifying that the ticket tax does not apply to operators such as NetJets, whose customers buy fractional ownership in planes operated and maintained by NetJets.

The NetJets lawsuit covers 2003 to 2009 and has two parts.

The company believes it is due a $218 million refund from the government for taxes it has paid on the hourly fees that its fractional owners paid it. NetJets also seeks an abatement of more than $330 million for an additional tax the government levied on the monthly management fees and fuel costs NetJets charges its customers.

"We can't comment and will respond to the motion," said Nicole Navas, spokeswoman for the Justice Department's Tax Division.

NetJets is represented by Columbus lawyers John Zeiger and Bradley Ferrell, who also declined to comment.

In its most recent court filing, NetJets said the computers of three key IRS employees were wiped clean, including the computer of "an excise-tax policy manager and a key decision maker regarding the application of the section 4261 ticket tax to whole and fractional aircraft-management companies."

The lawsuit filed by NetJets stated that "an owner transports himself when he flies on his own aircraft, even if he pays others to assist him in maintaining and operating the aircraft," and that the ticket tax and taxes on monthly fees and fuel costs are not applicable.