US IRS Focuses on Personal Use of Corporate Jets for Tax Audits

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TL/DR –

The Internal Revenue Service (IRS) has announced a crackdown on wealthy executives who may be fraudulently claiming costs from personal use of company jets as business expenses. This move is part of a greater effort to boost revenue collection via dozens of audits focusing on large corporations, partnerships, and high-income taxpayers, and will make use of resources provided by the 2022 Inflation Reduction Act. Although the potential additional taxes collected from the audits is unclear, the IRS believes that the $80 billion from the Inflation Reduction Act could result in an increase in tax collections by $561 billion over a decade.


IRS Targets High-Income Taxpayers with New Business Jet Audits

The Internal Revenue Service (IRS) has announced plans to audit wealthy executives who may be misusing company jets for personal trips and deducting the costs as business expenses. This crackdown is part of a new initiative to increase revenue collections.

The IRS will concentrate its efforts on large corporations, partnerships, and high-income taxpayers. It plans to use “advanced analytics” and resources provided by the 2022 Inflation Reduction Act, an Act that funded the IRS with an additional $80 billion over a decade to modernize its systems.

Audits will focus on the proper allocation of jet use between business and personal purposes. The frequency of audits may rise as the IRS hires more examiners. Business aircraft usage can be claimed against a company’s profit, but the costs must be apportioned between business and personal use.

IRS Commissioner Danny Werfel expressed that this is a complex area of audit where the agency’s work has been limited due to over a decade of decreased funding and staffing. “These aircraft audits will help ensure that high-income groups aren’t flying under the radar with their tax responsibilities,” Werfel said.

When an executive uses a company jet for personal travel, these costs should be counted as additional personal income and may limit the firm’s ability to deduct flight-related expenses. The IRS did not specify the potential tax revenue increase from these audits.

The funding from the Inflation Reduction Act has enabled the IRS to hire over 5,000 staff to promptly answer calls, process tax returns, and tackle tax avoidance schemes more efficiently.

However, Republicans in Congress have criticized the Biden administration, accusing it of building an “army” of IRS agents to harass American taxpayers and have tried to withdraw the funding. In contrast, a bipartisan spending deal for 2024 proposes to cut $20 billion from the total over a year.

After successfully collecting $38 million from 175 high-income taxpayers, the IRS is continuing audits of another 1,600 wealthy individuals, having already collected $482 million. The Treasury and IRS now estimate that the full $80 billion would result in an increase in tax collections by $561 billion over the next decade.

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