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Biden Administration Targets Corporate Jets in Tax Crackdown

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Edited by: TJVNews.com

The Biden administration’s pursuit of increased government revenue has turned its gaze skyward, with a keen focus on corporate jets as a potential source of additional tax revenue, as was recently reported in the New York Times. This scrutiny of private air travel represents a broader effort to compel large corporations to pay their fair share in taxes and to curtail tax evasion among the wealthy.

For years, private air travel has been synonymous with opulence and extravagance, drawing the ire of Democrats who seek to eliminate tax incentives that facilitate its use, according to the NYT report. From celebrities such as Taylor Swift to Fortune 500 CEOs, the perception of luxury associated with corporate jets has made them a prime target for reform.

At the heart of the issue are tax loopholes that have long favored corporate aviation over commercial airlines, allowing companies to write off the cost of jets more expeditiously and pay reduced fuel taxes, the NYT report noted. President Biden has seized upon this issue, incorporating plans to address corporate aviation taxation into his $5 trillion proposal for tax increases.

Speaking at his State of the Union address and a campaign event in Philadelphia, President Biden emphasized the need for big companies to contribute their fair share to the tax system, signaling his administration’s intent to close loopholes and ramp up scrutiny of executives who utilize company planes for personal travel.

Treasury Secretary Janet L. Yellen echoed this sentiment at a Senate hearing, commending the Internal Revenue Service’s efforts to combat abuse of corporate jet write-offs through a new initiative, as per  the information provided in the NYT report. However, these proposals have elicited swift opposition from the corporate aviation industry, which argues that they unfairly penalize American companies reliant on private planes for essential business operations.

Ed Bolen, president and CEO of the National Business Aviation Association, expressed concerns over the lack of justification for targeting the corporate aviation sector for tax increases. According to the NYT report, he emphasized the importance of understanding the rationale behind these proposals and urged a more thorough examination of the facts.

While the likelihood of the budget’s approval by Congress remains uncertain, the proposed measures signal a concerted effort to level the playing field and ensure that wealthy individuals and corporations contribute their fair share to federal investments and deficit reduction.

At the heart of the budget proposal are two key initiatives that would impact jet users. Firstly, there’s a plan to incrementally raise the tax on jet fuel over five years, with the aim of reaching $1.06 per gallon from the current rate of 21.8 cents per gallon. The NYT report explained that the revenue generated from this increase would be directed towards the Airport and Airway Trust Fund, which supports federal investments in airport and airway infrastructure. The Biden administration argues that the current tax rate fails to adequately capture the contributions of private jets, which represent a significant portion of flights handled by the Federal Aviation Administration but contribute disproportionately less to the trust fund.

The second proposal targets a tax break enjoyed by companies that purchase corporate jets, allowing them to deduct the cost of their planes more quickly than commercial aircraft. Under current regulations, businesses can write off the expense of a corporate jet over five years, compared to the seven-year period applicable to commercial airplanes, the report in the NYT said. The budget proposes aligning the tax treatment for corporate and commercial jets, introducing a seven-year “bonus depreciation” period for both categories of aircraft.

According to estimates from the White House, these proposals have the potential to generate $4 billion in revenue over a decade, signaling a significant contribution to deficit reduction efforts and investments in the American people.

Michael Kikukawa, a White House spokesman, emphasized the administration’s commitment to creating a more equitable tax system, stating, “This is about leveling the playing field for the middle class by making big corporations and the wealthy finally pay their fair share,” according to the NYT report. Kikukawa highlighted the importance of cracking down on wealthy tax cheats and closing loopholes for corporate jet purchases as part of broader efforts to address fiscal disparities.

The White House’s proposals coincide with recent initiatives from the Internal Revenue Service (IRS) aimed at curbing abuses in corporate jet ownership. The information contained in the NYT report indicated that the IRS’s crackdown targets companies that exploit loopholes in the tax code to claim excessive deductions on airplanes used for personal travel by executives, signaling a coordinated effort to ensure compliance and fairness in tax enforcement.

This heightened scrutiny of corporate jet usage comes amid concerns over potential tax evasion and the misuse of deductions related to private air travel.

Under current tax regulations, companies are permitted to deduct the expenses associated with maintaining corporate jets if they are used for business purposes. However, there have been instances where executives, shareholders, and partners have utilized company planes for personal trips while still claiming full deductions for these expenses, as per the NYT report. This practice has raised red flags within the IRS, prompting a comprehensive audit initiative to ensure compliance with tax laws.

The IRS audits will not only focus on companies and their corporate jets but also extend to the wealthy passengers who benefit from these flights. As was noted in the NYT report, the agency contends that individuals utilizing corporate jets for personal travel should report such trips as income, thereby closing potential loopholes in the tax code and preventing revenue loss.

 

Daniel Werfel, the IRS commissioner, highlighted the importance of enhanced technology in facilitating these audits during a speech at American University. According to the NYT report, he emphasized that the agency’s upgraded digital infrastructure enables more rigorous analysis of flight data, allowing for a more comprehensive examination of inappropriate write-offs for personal use of corporate assets, including corporate jets.

However, not everyone is convinced that the IRS audits will yield the anticipated results in terms of recovering missing tax revenue. Ryan DeMoor, head of aviation tax at MySky, expressed skepticism, noting that many executives are required to utilize corporate airplanes, even for personal travel, the report added. DeMoor argued that finance departments tend to err on the side of caution when reporting aviation taxes due to the potential risks and costs associated with inaccuracies.

“They’re falling into the fat-cat executive trope out there, which is just not the case,” DeMoor asserted, as was reported by the NYT. He challenged the notion that Fortune 500 companies would jeopardize their reputations by attempting to save a nominal amount of tax money on flight expenses.

As the IRS ramps up its efforts to combat tax evasion related to corporate jet use, the debate surrounding the taxation of private air travel is likely to intensify, with stakeholders on both sides advocating for their respective positions on compliance, fairness, and the integrity of the tax system.

 

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