Corporate jet users brace for more IRS audits

Corporate jet owners and operators are upset about dozens of additional audits scheduled for later this spring, the Internal Revenue Service announced this week.

Industry groups say jetliners have done nothing wrong, while tax experts say taxes on corporate perks like jets are being taxed to pursue the roughly $700 billion a year the IRS doesn’t collect. They claim it’s a good way to expand your base. .

The agency has not said how much it expects to collect as a result of the tightened crackdown on jet use, but as part of the agency’s crackdown on wealthy taxpayers, it has collected $482 million in taxes from billionaires so far. He points out that the amount is up to $1,000.

The National Business Aviation Association (NBAA), a trade group for companies involved in business air travel, questions why the IRS would target corporate flyers.

“[The] “The IRS announcement is nothing more than an audit to look for problems,” NBAA President and CEO Ed Bolen said in a statement sent to The Hill by marketing agency FleischmanHillard.

“It is difficult to understand why authorities would suggest that these companies are not complying with applicable tax laws,” Bolen said.

NBAA said the use of corporate jets by executives and executives for personal purposes is “routinely” approved by the boards of public companies, but what does that have to do with U.S. tax law? It is not clear whether there is.

“Directors of publicly traded companies regularly approve the use of aircraft by key personnel, including for non-work reasons, and some companies do not allow specific aircraft to be used under any circumstances due to safety and security concerns. of employees must travel on company aircraft,” NBAA said. In a statement.

The IRS said Wednesday that people who fly on corporate jets for personal reasons should keep in mind that those flights are deducted from their taxes as a form of personal income, and they must pay taxes on it. said.

IRS officials said 30 to 40 additional audits related to the use of corporate jets will examine whether the books are accurate.

Tax experts say not reporting flights as income is just the tip of the iceberg when it comes to how corporate jets are used to defy tax laws.

A study by the New York University Tax Law Center found that even when flights are recorded as income, flight costs such as fuel, pilot and flight attendant wages, meals and amenities, and airport fees are significantly understated.

A potential underestimation is that air travel legally earns income using a specific type of rate called a Standard Industry Fare Level (SIFL) rate, which is well below the normal market rate for private air travel. This is because it is recorded as .

“Although more manageable, the amount included in income is well below market rates. Currently, SIFL rates range from 18 cents to 25 cents per mile, and $8 to $23 per mile.” “charter fees,” New York University experts found.

SIFL’s prices are closer to the price range of mass-market commercial flights, which on average have much higher density and seating capacity than private plane travel. According to United Airlines, the cost per seat mile was approximately 17 cents in 2022. company declaration form.

Experts argue that applying SIFL rates to corporate jets is the same as the government subsidizing the personal use of corporate jets.

“As the IRS focuses on private jets, it will need to reconsider how it values ​​personal use of corporate aircraft. Current rules allow for significant undervaluation of these tickets. New York states that “wealthy filers can pay much lower taxes than their fair market value dictates, and it is within the IRS’s authority to amend these rules.” said Mike Kercher, senior legal advisor for the University Tax Office. The Law Center wrote in its analysis:

The IRS did not discuss the SIFL rate during a call with reporters Wednesday about corporate jet use, instead focusing on the failure to report income.

But IRS Commissioner Danny Wuerffel said Wednesday that the IRS intends to use what it learns from the new audit to inform future enforcement procedures.

“Our audit rate is poor,” Werfel said. “If you’re not doing the required amount of auditing, you’re actually increasing your risk of non-compliance.”

The IRS is currently in the midst of a complete overhaul enabled by an initial $80 billion funding boost in 2022, with artificial intelligence and new analytics capabilities being developed and implemented.

Corporate jets, used almost exclusively by a small percentage of America’s wealthy, have symbolic value to the IRS, which pursues tax fraud among the wealthy, but could benefit from a fairer taxation of jets. The actual tax revenue generated will be less than $1 billion over 10 years. An amount designated as a “small amount” by the New York University Tax Law Center in 2017.

More important ways to collect more taxes from business owners and those who fly corporate jets include making deferred salaries taxable in the year they are earned and deducting dividends received from foreign companies. This includes abolishing the tax and limiting the types of assets that are subject to tax. The money will be kept in a retirement account, the center said.

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