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IRS now closely watching corporate jets: no more flying under radar

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TLDR:

  • The IRS announced a campaign to investigate the use of corporate jets by large businesses and wealthy individuals to close the tax gap.
  • The campaign focuses on bonus depreciation, substantiation of business deduction, and proper imputation of income/depreciation disallowance for personal use.

The Internal Revenue Service has initiated a campaign to scrutinize the use of corporate jets by large businesses and wealthy individuals. The goal of this campaign, which is part of a broader effort to close the tax gap, was announced on February 21, 2024. Zeinat Zughayer, tax controversy manager at Top 100 Firm Baker Tilly, highlighted that the IRS has already collected $482 million through audits of 1,600 wealthy individuals. These audits are aimed at ensuring that high-income groups are meeting their tax responsibilities.

In the examination of corporate aircraft, the IRS focuses on three key issues: qualification for bonus depreciation, substantiation of business deductions, and proper imputation of income and calculation of depreciation disallowance for personal use. Zughayer advises clients to implement best practices, such as using flight log software to document the business purpose of flights and keeping thorough documentation to support deductions.

The recent attention on corporate jet usage stems from an increase in deductions post-COVID and a letter from progressive senators praising the IRS for its efforts to crack down on executives excluding income related to personal trips. Overall, the rules surrounding deductions for corporate aircraft have not changed, but the IRS is now placing more scrutiny on them to ensure compliance.


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