The IRS has announced a new audit campaign targeted at the use of private aircraft, a/k/a “corporate jets”. This has been an intensifying area of focus by the IRS over the last few years as a result of recently-increased tax benefits for private aircraft. Clients who use airplanes for business and have taken advantage of these tax benefits should be prepared for additional scrutiny of their tax returns.
Corporate jets had often been the focus of audits and reviews by the IRS in earlier years, due to some longstanding tax rules that applied to them—including complicated rules for determining which portion of the use of a corporate jet for an executive was personal versus business (with the personal portion being treated and taxed as wages), rules limiting depreciation for luxury travel (which includes private jets and some automobiles) with excess personal use, and specialized excise taxes. The Tax Cuts and Jobs Act created a new and potentially very significant tax benefit associated with corporate jets: the potential to essentially deduct the entire upfront cost of the plane, for planes put into service between 2018 and 2022—if certain business use tests were met. Perhaps with a skeptical eye on these new-and-improved tax benefits, the IRS announced the audit campaign of private aircraft, with a focus on those owned by business corporations and “complex partnerships.
” Items for examination include all of the issues flagged above (such as the deductibility of flig.
