IRS to undertake dozens of audits of corporate aircraft usage: PwC

IRS to undertake “dozens” of audits of corporate aircraft usage

February 2024

In brief

What happened?

The IRS on February 21 announced that it will begin auditing dozens of companies regarding the personal use of company aircraft by executives. This recent announcement is part of a larger effort by the IRS to shift its compliance focus to high-net-worth individuals. Please see our prior Insight, IRS shifting focus onto high-income earners, partnerships, and large corporations.

Why is it relevant?

Companies have long allowed executives to use employer-provided aircraft for personal use. The tax law regarding deductibility of aircraft expenses is complex, and the diligence of companies in keeping records heavily factors into the accuracy of the reporting. There are also individual and employment tax ramifications to personal use of the company aircraft because the value of these flights is considered imputed income to the executives.

Actions to consider

Affected taxpayers should review the use of each aircraft to ensure that personal flights by executives are being properly reported. Consideration should be given to reporting the value of such flights as additional income for the employee and to the company through the proper calculation of any deduction disallowances of aircraft expenses related to personal entertainment use by specified individuals (or other disallowed categories of flights).

In detail

The IRS has announced in IR-2024-46 its intention to audit dozens of companies regarding personal use of corporate aircraft as part of a larger effort to improve tax compliance by large partnerships, large corporations, and high-income individuals.

Large companies historically have allowed executives to fly on the company jet for both business and personal flights. While these companies get a full tax deduction for the expenses related to business flights -- provided appropriate substantiation is maintained -- the tax law does not allow all the aircraft expenses for certain personal flights to be deducted by the companies. In addition, a taxable fringe benefit should be imputed to the executives for personal flights.

Observation: Taxpayers should review the aircraft flight logs to determine which flights were used for personal purposes by executives. This may require a detailed analysis of the basis for the flights, particularly those that have both business and personal components. For flights that are identified as personal in nature, taxpayers should confirm that imputed income was calculated and reported appropriately and determine the amount of aircraft expenses that may be disallowed due to certain personal use to avoid unwanted consequences during IRS examination.