Revenue Ruling 2001-4

X was a commercial airline that owned and leased aircraft that X used to transport passengers and freight. For X to maintain an operating license and airworthiness certification, the Federal Aviation Administration (FAA) required X to design and follow continuous-maintenance programs for the aircraft in X’s fleet. The maintenance program for each aircraft required various levels of periodic maintenance over the aircraft’s operating life. One of the required types of maintenance was a so-called “heavy maintenance visit,” which X was required to perform every eight years. Heavy maintenance visits allowed X to assess the safety and reliability levels of the aircraft’s equipment and make any repairs necessary to restore the equipment to the desirable operational levels. In one scenario involving X and X’s aircraft, X acquired an aircraft in 1984 for $15 million. X placed the aircraft into service with the reasonable expectation that the aircraft would have a useful life of up to 25 years, assuming all necessary repairs and maintenance were performed to keep the aircraft operational. In 2000, X performed a heavy maintenance visit on the aircraft. The heavy maintenance visit cost X $2 million and took 45 days, during which X disassembled the aircraft’s airframe and performed tasks including inspecting, repairing, cleaning, and repainting the airframe and performing additional maintenance work in response to manufacturer service bulletins and FAA airworthiness directives. None of the work performed during the heavy maintenance visit resulted in material upgrades, additions, or replacements that materially increased the aircraft’s value or prolonged the aircraft’s estimated 25-year useful life. Instead, the maintenance work ensured that the aircraft was still in acceptable operating condition. The Internal Revenue Service issued a revenue ruling analyzing whether the $2 million in maintenance costs incurred by X for the heavy maintenance visit were deductible as ordinary and necessary business expenses under § 162 of the Internal Revenue Code (the Code).