Learning and Adapting to Regulatory Changes for Aircraft Transactions: L2b Aviation Livestream with Maria Gonzalez and Andrea Villa
In the recent L2b Livestream event, legal experts Maria Gonzalez from McAfee Taft (Oklahoma City, Okla.) and Andrea Villa from Harper, Meyer (Miami, Fla) shared valuable insights into the complexities of registering, exporting and importing aircraft in the United States and highlighted important regulatory changes. These changes shed light on certain changes with the FAA and the Aeronautical Center (ACC), complying with the Corporate Transparency Act (CTA) and meeting export and import requirements.
From this discussion came the lesson that getting ahead and staying informed of important regulatory requirements will significantly reduce potential penalties and help avoid unnecessary groundings of aircraft and sales transactions.
1. Changes with the FAA and the Aeronautical Center Council’s (ACC) office
Maria Gonzalez opened the discussion by addressing changes made over a year ago by the Aeronautical Center Council’s (ACC) office. Traditionally, the ACC would provide opinions on trust agreements, an essential step in registering an aircraft. However, FAA examiners are now in charge of reviewing trust agreements to determine if they comply with the Non-Citizen Trust requirements, which has led to increased processing times for registration. Buyers of aircraft will be particularly affected, especially in situations where an international flight is scheduled immediately following closing because the additional processing time will delay receipt of the fly wire. Now parties can expect that it will take between 2-3 business days to receive fly wires.
Furthermore, in the past, we could submit finance leases and leases with purchase options to the ACC’s office ahead of closing for review, and request an opinion regarding whether the lease should be considered the equivalent to conditional sales agreement making registration proper in the name of the lessee. Now, the ACC’s office is no longer issuing these types of opinions nor are they reviewing leases prior to filing, instead it is the FAA examiners who will review the leases and determine whether the lease is the equivalent of a conditional sales agreement. In order to assist the FAA examiners with the review of the lease, these types of leases must also be accompanied by an affidavit of lessee or lessor which sets for the reasons why the lease should be considered the equivalent of a conditional sales agreement. The FAA examiner will review the affidavit and lease and make the determination. If the FAA examiner has questions, he/she will reach out to his/her supervisor for assistance. Again, this will further delay the processing time, and parties should plan accordingly, especially if there is an international flight scheduled for the aircraft, as it will take longer to receive the fly wire in these situations.
These situations often require more information or documentation and additional time for the registration process. To ensure the process goes quickly and smoothly, collaborate early with legal counsel to navigate these changes.
2. Corporate Transparency Act (CTA)
Andrea Villa then focused on the upcoming Corporate Transparency Act (CTA) that will go into effect on January 1, 2024. The CTA will apply to certain foreign and domestic entities determined to be reporting companies. This may include U.S. corporations, limited liability companies, statutory trusts and business trusts and may also include certain foreign companies registered to do business in the United States. Compliance with CTA is especially relevant to aircraft owners and operators as many use these entities to buy, register and operate aircraft in the U.S. Determining whether a CTA filing may be required will likely become common practice in aircraft transactions.
CTA will require reporting companies to report certain information about the company, its beneficial owners and controlling persons to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Reports will be filed though an online platform called the Beneficial Ownership Secure System.
The reporting requirements will differ based on the date when the reporting company was formed. For example, Reporting companies formed before January 1, 2024, will have until January 1, 2025, to file their initial report. However, reporting companies formed on or after January 1, 2024, will have 90 days from formation to file their initial report. Once an initial report is filed, any changes to the filed information will have to be updated 30 days from the date the change took place. For example, if the business owner’s or controlling partner’s contact information changes, such as a change of address, this information will need to be updated on the system.
Although it may seem on the surface that complying with CTA is a simple process of just inputting identification and contact information into a website, penalties for non-compliance are pretty high. Civil penalties may include a daily $500 fine (up to a maximum of $10,000), while criminal penalties may include up to two years’ imprisonment.
Currently, there are 23 exemptions for companies that will not have to file this CTA, these mainly that apply primarily to larger or more heavily regulated companies. For example, banks, publicly traded companies, or larger companies with over 20 employees, with offices in the U.S. and that reported more than $5M U.S. income on their prior year return.
Andrea’s team at Harper-Meyer is focusing on determining whether the entities used in their aircraft structures are subject to CTA and what their reporting requirements will be.
Again, gathering all of the relevant information (including company tax identification numbers, and government-issued identifications for beneficial owners and controlling persons) will take time, so the education process for clients should start today.
The FinCEN website portal is not active as of this interview, so there are some unknowns about how the system will work and if it will work properly. Given that these new requirements may apply to over 32 million entities, it is important to start the registration process early.
3. Exports and import U.S. Customs Bureau filings
Andrea then discussed the importance of accurate export filings with the U.S. Customs Bureau, especially for aircraft bought and registered in the United States but housed or based in other countries for significant time.
Owners that move aircraft to other countries often believe there are no additional requirements once the FAA registration regulations are met. However, depending on the specifics of a transaction, the International Trade Association may also require the aircraft owner to file an Electronic Export Information (EEI filing) to meet customs regulations.
Additionally, buyers that register an aircraft in the U.S. and keep the U.S. tail number but base/hangar the aircraft in another country are often under the impression there are no requirements to file an export. However, this is not always the case and action may need to be taken to rectify these situations.
It’s important for anyone in these cases to resolve these situations as soon as possible. Collaborating with legal professionals and customs brokers is essential to navigate these complexities and avoid transaction delays and complications.
Depending on when the owner bought the aircraft, with the help of a customs broker, the owner may be eligible for a retroactive export. If not, there is a possibility of a voluntary disclosure.
These situations get complicated when an aircraft returns to the United States and, therefore, is not imported. If the paperwork is not clear with customs, the selling of aircraft will be affected.
Buyers are taking notice of the crackdown on these situations. Buyers are now putting in provisions for aircraft requiring the buyer to show the proper filing before the sale is complete or will be completed before the sale. The faster the issue is identified, the quicker the issue can be resolved.
The recent changes discussed at the L2b Livestream event emphasize the importance of a solid understanding and compliance with evolving regulations in aircraft transactions. As the landscape continues to shift, staying informed, disclosing required information as soon as possible and working closely with legal counsel is vital for a smooth and timely aircraft registration and buying and selling process.
- November 2023