Corporate Jets Land on the Radar at the IRS

Executives’ corporate aircraft usage – up 50% since 2019 - will be the focus of IRS audits according to a WSJ article that indicates the agency will initiate three to four dozen inquiries at large corporations.

What’s happening: With new funding from the Inflation Reduction Act, the IRS plans to conduct these audits to ensure everyone is paying their fair share – including high wage earners. Millions of dollars, they say, are at stake. The audit will focus on overstated company deductions as corporations are eligible to take a tax deduction for the cost of the aircraft and business-related travel.

The bottom line: The IRS feels audits are warranted because companies are not maintaining “enough robust record-keeping” of jet usage which leads to “systemic overstating of business deductions.”  Companies that have taken a deduction in any year should ensure their records are sufficient.

Go deeper:

• Business or pleasure? The tax implications depend on several factors including whether the trip is business, pleasure or a combination of the two. CEOs often use the corporate jet for personal travel, either for convenience or for security reasons. Meta reported spending $6.6 million in 2022 for executives’ personal use of the company’s aircraft.
  
  
• Tax Implications:  This area of the tax code can be complex, particularly when there are plenty of commercial options available. It is further complicated if the aircraft is owned by a separate legal entity, as explained in this Forbes article.
  
  
• Individual implications: A secondary goal of the IRS audits will be focused on high-net-worth executives as the agency steps up its efforts on the wealthiest taxpayers to “pay what is legally owed under federal law,” according to an IRS Commissioner.

SEC scrutiny. The agency also increased its enforcement around inadequate disclosures of executive perquisites in 2023, including aircraft usage. Legal firm Lucosky Brookman suggests steps companies should take to ensure disclosures are accurate and inclusive of the full range of benefits provided to executives. 

A Center On Executive Compensation survey conducted last year focused on executive perks and company travel practices which can serve as a helpful resource for organizations benchmarking their current practices.