The IRS announced (IR-2024-46) plans to begin dozens of audits on aircraft usage by large corporations, large partnerships and high-income individual taxpayers to determine if personal use is treated properly. The examination of corporate jet usage is part of the IRS Large Business and International division’s “campaign” program.
All aspects of the business aircraft lifecycle, from acquisition to operation to disposition, can involve high-risk, complex federal and state tax return issues for business and personal tax returns. These issues involve a multitude of tax specialty areas that often interact and overlap to defer or disallow deductions or losses. For example, aircraft are often used for business entertainment, commuting and personal reasons by officers, executives, other employees, shareholders and partners, but tax deductions for such use are limited or disallowed. Additionally, personal travel typically results in income inclusion for the individual using the business aircraft for personal travel. Business aircraft is a complex area of tax law for which record-keeping can be challenging.
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Taxpayers should assess their supporting contemporaneous documentation to ensure they have adequate records to properly classify and support the deductible use and that they have considered other complex interactions such as the impact on income to the passengers, as well as other limitation and recapture provisions.
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