IRS Targets Private Jet Usage - Introduction
The Internal Revenue Service (IRS) is setting its sights on the skies, announcing an upcoming audit initiative focused on the use of private jets by large corporations, partnerships, and high-income individuals.
Perhaps they've been watching
Succession?
Surge in Personal Use of Private Jets?
This move aims to look at the allocation of aircraft usage between business and personal purposes, a practice that has seen significant growth in recent years.
According to a report by the Wall Street Journal, executive personal use of corporate jets has surged by 35% since 2015, with spending on such flights increasing by a staggering 92%.
The Fright Plan
Despite previous audits in this area, the IRS believes that private aircraft usage has not been sufficiently monitored over the past decade.
With plans to expand the team of examiners, the IRS indicates that the number of audits concerning aircraft usage could rise based on the findings of this initial initiative.
Key Areas of Focus
The audits will investigate whether:
- The use of aircraft by large corporations, partnerships, and high-income taxpayers is accurately divided between business and personal reasons;
- The appropriate business deductions are claimed for aircraft maintained for business purposes;
- Personal use of aircraft is correctly documented and impacts eligibility for certain business deductions and income inclusion by individuals.
IRS Commissioner's Statement
IRS Commissioner Werfel emphasised the agency's commitment to increasing scrutiny on high-income taxpayers, signaling a broader effort to ensure compliance among the wealthiest individuals and organisations.
This initiative aligns with the objectives set forth by the Inflation Reduction Act, aiming to reverse historically low audit rates and enhance the focus on substantial income and corporate entities.
Challenges and Recommendations
Tax law surrounding the business use of aircraft is complex, and maintaining accurate records can be challenging for taxpayers.
Issues often arise due to inadequate contemporaneous documentation, leading the IRS to classify the aircraft as an "entertainment facility" under IRC Section 274 in some examinations.
This classification can result in the denial of all deductions, including those associated with business use.
As such, affected taxpayers that are utilising private jets are advised to review and assess whether their record-keeping practices are fit for purposes. In other words, they can ensure a clear distinction between business and personal use to comply with IRS requirements.
IRS Targets Private Jet Usage - Conclusion
The IRS's new audit initiative on private jet usage underscores the agency's dedication to ensuring tax compliance among high-income individuals and large entities.
As the IRS bolsters its examination efforts, taxpayers should take proactive steps to ensure their usage of business aircraft aligns with tax laws and regulations, particularly in maintaining and documenting usage accurately.
Final thoughts
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IRS Targets Private Jet Usage, then please get in touch.