Miller Canfield Discusses Increased IRS Examination on the Usage of Corporate Jet Planes

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TL/DR –

The IRS has announced plans to increase funding to audit corporate aircraft usage by large corporations and high-income individuals. This move has been opposed by the National Business Aviation Association, which claims that it is an unnecessary audit in search of a problem. The audits will focus on ensuring the aircrafts are used for business purposes to justify tax deductions and will impose penalties if they are used for personal reasons.


New IRS Audits Aim at Corporate Aircraft Usage

The IRS started scrutinizing corporate aircraft usage on February 21, 2024, under the Inflation Reduction Act. Targeting corporations, partnerships, and high-earners, this move provoked criticism from the National Business Aviation Association (NBAA).

The NBAA countered the IRS’s decision, labeling it as a hunt for non-existent problems and negatively impacting U.S. companies that depend on business aircraft to compete globally.

Proposed Fuel Tax Increase in the 2025 Fiscal Budget

After the IRS announcement, President Biden’s Fiscal Year 2025 budget proposal included a significant fuel tax hike, seen as a harsh penalty on the aviation sector by the NBAA and the larger aviation community. NBAA data reveals that the business aviation sector supports 1.2 million jobs and contributes $250 billion to the U.S. GDP.

Impact on Business and Personal Use Tax Deductions

The IRS audits will scrutinize how corporations account for business and personal use of corporate aircraft for tax purposes. A company can typically deduct expenses related to the use and maintenance of a corporate aircraft used for business purposes. However, personal use may affect these deductions. Furthermore, individuals using the company aircraft for personal purposes must declare the value of the flight as income.

Potential Consequences of Inadequate Apportioning

The IRS will require audited companies to provide adequate documentation justifying their deductions related to corporate aircraft usage. A failure to correctly apportion between business and personal usage could result in increased tax liabilities and penalties for both the companies and individuals involved.

Considering the complexity of apportioning costs for company aircraft, maintaining proper records can help limit potential tax exposure for companies and individuals using corporate aircraft. While industry experts argue that corporate aircraft owners are generally compliant and the IRS scrutiny is excessive, this issue isn’t going away anytime soon.

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