IRS Heightens Scrutiny on Corporate Aircraft Usage | Miller Canfield

TL/DR –

The IRS announced on February 21, 2024, plans to increase funding under the Inflation Reduction Act in order to audit the usage of corporate aircraft by large corporations, partnerships, and high-income individuals. In response to the IRS’s plans and the Biden administration’s proposal of a significant fuel tax increase in the FY 2025 budget, the National Business Aviation Association stated that this move unfairly targets the aviation sector, which supports 1.2 million jobs and contributes $250 billion to the US GDP. The IRS will specifically investigate whether companies and individuals have been correctly accounting for personal and business use of corporate aircraft for tax purposes and could impose increased tax liabilities and penalties on those found in breach.

Increased IRS Audits on Corporate Aircraft Use

In an effort to enhance scrutiny on high-income groups, the IRS has revealed plans on February 21, 2024, to bolster auditing activities on corporate aircraft usage. This initiative falls under the Inflation Reduction Act targeting large corporations, partnerships, and high-net-worth individuals.

Resistance from National Business Aviation Association

The National Business Aviation Association (NBAA) has voiced concerns over the IRS’s decision. They argue this move is baseless, painting an unwarranted negative picture of the thousands of US businesses reliant on corporate aircraft to thrive in a global economy.

Proposed Fuel Tax Increase in Fiscal Year 2025 Budget

The Biden administration’s Fiscal Year 2025 budget proposal – featuring a substantial fuel tax hike – is perceived as an unwarranted penalty on the aviation sector by the NBAA and its community. NBAA data indicates the business aviation sector supports 1.2 million jobs and adds $250 billion to the US GDP.

Audit Focus and Implications

The IRS intends to ascertain if companies have appropriately accounted for the business and personal use of corporate aircraft for tax purposes. Missteps in accounting for personal use could impact the company’s deductions and increase tax liabilities and penalties for both the company and individuals.

Need for Proper Record Keeping

Considering the complexity of rules related to company aircraft cost apportioning, businesses must maintain accurate records. This can limit potential tax exposure for both the company and individuals who utilize the aircraft. Despite industry experts asserting that corporate aircraft owners generally comply, this issue will remain under heightened scrutiny.

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