IRS to Crack Down on Corporate Jet Tax Abuses

IRS to Crack Down on Corporate Jet Tax Abuses

Edited by: TJVNews.com

In a move aimed at curbing tax code exploitation, the Internal Revenue Service (IRS) announced on Wednesday its intention to intensify scrutiny of corporate jet owners who claim substantial deductions for airplanes frequently used for personal travel, as was indicated in a recently published report in the New York Times.

The IRS will deploy new data analytics tools, developed with a portion of the $80 billion allocated through the Inflation Reduction Act of 2022, to identify instances where corporate aircraft are utilized for vacations and private trips by executives or other company officials, according to the information provided in the NYT report. The agency plans to initiate dozens of audits targeting large corporations, partnerships, and affluent taxpayers.

Daniel Werfel, the IRS commissioner, highlighted the importance of these aircraft audits in ensuring that high-income groups fulfill their tax obligations. The NYT report indicated that in a briefing to announce the initiative, Werfel said, “These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”

The NYT report also stated that the crackdown on corporate jet usage comes amidst pressure on the IRS to demonstrate prudent use of the substantial funds allocated by Congress. Lawmakers have already approved the retrieval of $20 billion of the $80 billion granted, with some Republican legislators advocating for further reductions.

The Biden administration, aiming to reduce the estimated $700 billion annual tax gap, has emphasized increased enforcement efforts targeting corporations and wealthy individuals. The report in the NYT added that recent enforcement endeavors have yielded promising results, with the IRS collecting $482 million from 1,600 millionaires since bolstering its enforcement initiatives.

Under current tax regulations, businesses are permitted to deduct expenses related to corporate jet maintenance if the aircraft is used for business purposes. However, many companies permit executives, shareholders, and partners to utilize company planes for personal trips while continuing to claim full deductions, as was pointed out the NYT report. The IRS intends to expand audits beyond jet-owning companies to include affluent passengers, asserting that such personal trips should be reported as income.

The surge in corporate jet sales, particularly following the 2017 tax legislation enacted by Republicans, has heightened concerns. This legislation bolstered bonus depreciation, allowing for the full deduction of a plane’s cost in the initial year of ownership, as was mentioned in the NYT report. With tens of thousands of corporate jets in operation across the United States, significant tax revenue is believed to be slipping through the cracks.

“On a given taxpayer’s tax return, the amount of the deduction for aircraft travel can be in the tens of millions of dollars,” Werfel said, according to the NYT report. “That’s why it’s so important that we get this right, because the amount of the deduction, given the value of the asset, is so material.”

Navigating the fine line between business and personal travel poses a challenge, potentially leading to protracted legal battles for the IRS as it audits some of the nation’s highest flyers. The report in the NYT also said that the agency plans to commence with an initial wave of up to four dozen audits before considering further expansion of the effort.

As the IRS intensifies its efforts to combat corporate jet tax abuses, the initiative underscores the government’s commitment to ensuring tax compliance among high-income groups and corporations, striving to close the tax gap and uphold fairness within the tax system.