Aircraft Club: Evaluating security measures for executives and other employees

In detail

Establishing a bona fide business-oriented security concern

A bona fide business-oriented security concern exists only if the facts and circumstances establish a specific basis for concern for the safety of the particular employee. A generalized concern for an employee’s safety is insufficient. 

An employer must establish an overall security program for the employee providing 24-hour protection. Alternatively, the employer may have an independent security study prepared that provides other specific security recommendations (i.e., not 24-7 security protection) and is deemed to be an overall security program.

An independent security study must meet the following requirements to be deemed an overall security program (when a 24-7 security program is not warranted):

1. The study must be performed for the employer and the employee by an independent security consultant;  
2. The study must be based on an objective assessment of all facts and circumstances;
3. The study must recommend that an overall security program is not necessary, and that the recommendation is reasonable under the circumstances; and
4. The employer must apply the specific security recommendations to the employee on a consistent basis.

For purposes of a bona fide business-oriented security concern, an ‘employee’ includes:

1. An individual currently employed by the employer;
2. A partner who performs services for a partnership (deemed to be the employer);
3. A director of the employer; and
4. An independent contractor who performs services for the employer.

If a bona fide business-oriented security concern exists for an employee, then the security concern also is deemed to exist for the employee’s spouse and dependent children traveling with the employee in the same aircraft. However, when the employee’s spouse and/or dependent children do not travel with the employee in the same aircraft, a bona fide business-oriented security concern exists for the spouse and/or dependent children only if these requirements are met independently for the spouse and/or dependent children.

Effect on commuting

Prior to the Act, a common example of personal non-entertainment use of employer-provided aircraft was use of a company aircraft for commuting purposes, by transporting an executive employee from his/her residence to the place of employment. For example, if a taxpayer with offices located in New York City used the company aircraft to fly an executive from his/her home in Atlanta to New York City for work every Monday and to Atlanta for the weekend every Friday, the travel was personal non-entertainment travel. The executive had imputed income at the SIFL rates for personal use of the aircraft, and the employer was entitled to a full deduction of the expenses allocable to those flights.

The Act disallows an employer’s deductions for the expenses of providing transportation (such as via company aircraft) to an employee for commuting between the employee’s residence and place of employment, unless the transportation is provided for safety reasons. Consequently, if a security study has not established a bona fide business-oriented security concern for the employee, then not only does the employee still have imputed income for the commuting use of the company aircraft, but the employer’s deduction for the expenses allocable to that use also is disallowed. In contrast, if the requirements to establish a bona fide business-oriented business concern are met, the executive has less imputed income (as discussed above) and the employer may fully deduct the expenses allocable to those flights.