On 2/21/24, the IRS announced that it will begin auditing corporate jet usage as part of its larger effort to ensure high-income groups “don’t fly under the radar” on tax responsibilities. IRS Commissioner Danny Werfel stated that: “Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin. With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.” For the IRS, there are millions of tax deductions at stake by company executives and high net worth travelers as the sentiment is that corporate jets are used personally by executives and written off as a tax deduction.
The audits will be focused on aircraft usage by large corporations, large partnerships, and high-income taxpayers and whether for tax purposes the use of corporate jets is being properly allocated between business and personal reasons
These are some of the IRS concerns regarding the use of corporate jets and the proper allocation between business and personal reasons given that jets are often used for business and personal reasons by officers, executives, other employees, shareholders, and partners:
- The tax code passed by Congress allows a business deduction for expenses of maintaining an asset, such as a corporate jet, if that asset is utilized for a business purpose.
- The use of a company aircraft must be allocated between business use and personal use.
- It is a complex area of tax law, and record-keeping can be challenging.
- The amount of personal usage impacts eligibility for certain business deductions for someone such as an executive using the company jet for personal travel.
- Use of the company jet for personal travel typically results in income inclusion by the individual using the jet for personal travel and could also impact the business’s eligibility to deduct costs related to the personal travel.
This is part of a bigger IRS effort to help with high-income compliance efforts
On 9/8/23, the IRS announced new compliance efforts that will focus on increasing scrutiny on high-income taxpayers, partnerships, corporations, and promoters abusing tax rules on the books by using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes. Expansion in high-income/high wealth and partnership compliance work includes the pilot focused on largest partnerships leveraging Artificial Intelligence.
On 1/12/24, the IRS announced its continued progress to expand enforcement efforts related to high-income individuals, large corporations and complex partnerships stating that it had recovered more than $482 million from 1,600 millionaires who have not paid tax debts.
Are you a Business Owner or High Net Worth Individual using Aircraft for business and or personal reasons?
Are you familiar with the proper business and personal tax allocations?
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