Do you have any clients who might be using a corporate jet for personal use? Tell them the IRS has announced a crackdown.
On Feb. 21, the IRS announced plans to begin dozens of audits of business aircraft for personal use. The audits will review aircraft use by high-income taxpayers, as well as large corporations and partnerships, to see if jet use is being properly allocated for tax purposes.
During the past decade, the IRS said, it has not closely scrutinized such jet usage since the agency’s resources fell sharply. Depending on the initial results of this stepped-up effort, the IRS may increase such audits in the future.
“Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin,” said IRS Commissioner Danny Werfel in a Feb. 21 newsletter. “With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”
Officers, executives, other employees, shareholders and partners often use business aircraft for both business and personal reasons, the IRS said. However, companies must allocate the use of their aircraft between business and personal use. Because this is a complex area of tax law, companies can find record-keeping challenging, it noted.
When people use the company jet for personal travel, it typically results in that use being treated as income for the individual, the IRS said. It can also impact the business’s eligibility to deduct costs related to personal travel.
Other IRS Efforts
The IRS is using Inflation Reduction Act funding to improve tax compliance. In addition, the IRS is continuing to pursue millionaires who have not paid hundreds of millions of dollars in taxes, the agency said. The IRS has already collected $482 million owed by 1,600 millionaires, it added. It is also pursuing multi-million-dollar partnership balance sheet discrepancies and ramping up audits of more than 75 of the largest partnerships using artificial intelligence.
“The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act,” Werfel said. “We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law. The IRS will have more announcements to make in this important area.”
