IRS Begins Audits of Business Aircraft Use by Joseph Leocata, JD, CPA, MBA
The IRS has begun auditing the use of corporate jets to ensure taxpayers properly allocate business use from personal use for tax purposes. These efforts are part of the agency’s larger strategic plan to increase audit enforcement and improve tax compliance among large corporations, partnerships and high-net-worth individuals.
Under current law, businesses may deduct certain expenses to operate a company jet for business purposes. These expenses, including fuel and maintenance costs, are deductible only when they are “ordinary and necessary” for carrying out a trade or business. By contrast, these expenses are not deductible when executives, officers, or employees use a business aircraft for personal reasons or when their spouses or other family members join them as guests on bona fide business trips. Under some circumstances, personal use of a corporate jet may even be treated as taxable income to the traveler.
Businesses also have an opportunity to claim bonus depreciation deductions of as much as 60 percent of the cost of business aircraft placed in service in 2024 when at least 50 percent of the company’s jet use is for business purposes. For jets placed in service in 2023, taxpayers could recover 80 percent of their acquisition costs in the year of purchase. The rate of depreciation is set to decrease to 40 percent in 2025 unless Congress acts to restore 100 percent bonus depreciation in the future. With all the complexities of the law, it is critical taxpayers keep meticulous records to support their claims and properly calculate any deductions to which they may be entitled.
The IRS is relying on funding from the Inflation Reduction Act and advanced analytics to identify aircraft for audit and “ensure high-income groups aren’t flying under the radar with their tax responsibilities.” It expects the number of corporate jet audits to grow in the future as it continues to increase its staff. Taxpayers should take this time to ensure they properly account for personal and business use of a corporate jet and can support their claims with sufficient documentation.
About the Author: Joseph Leocata, JD, CPA, MBA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with individuals and businesses on a broad range of federal, state and local tax issues, including representation before the IRS on tax controversy matters. He can be reached at the CPA firm’s New York City office at (646) 213-7600 or info@bpbcpa.com.
← Previous
