Corporate Jet Tax Breaks Under IRS Scrutiny: What Businesses Need to Know

The IRS has ramped up efforts to crack down on the personal use of corporate jets, targeting companies that may be taking improper tax deductions. As part of a broader initiative aimed at ensuring wealthy individuals and complex partnerships pay their fair share, the agency is now auditing corporate jet usage more aggressively. 

This scrutiny could have significant implications for businesses, especially those taking advantage of bonus depreciation, a tax incentive that allows companies to deduct a large percentage of an asset’s cost upfront. If a company’s jet does not meet specific business use requirements, it could face additional taxes, penalties, or loss of deductions. 

The IRS’s Focus: Business vs. Personal Use 

The IRS audits focus on whether a company jet is primarily used for business purposes, which is a requirement to qualify for bonus depreciation. According to training materials obtained by Bloomberg Tax, IRS auditors are instructed to examine flight logs, passenger manifests, and other documentation to ensure that personal flights are not improperly deducted as business expenses. 

Key tests include: 

• 25% business use by employees other than the company’s 5% owners 

• 50% business use overall 

These tests are crucial in determining whether a jet qualifies for bonus depreciation. Companies are required to maintain detailed records, including flight logs, to ensure compliance. 

Increased IRS Audit Activity 

The IRS’s focus on business aviation has intensified, with dozens of audits already in progress. Agents are asking for a wide range of documentation, including flight logs, maintenance records, aircraft purchase documents, and even hotel and car rental receipts for each trip. This level of scrutiny is more comprehensive than what many companies may have faced in previous audits. 

IRS agents are particularly interested in: 

• Whether personal flights were deducted as business expenses 

• Whether related-party leasing arrangements are in place 

• Whether the company properly calculated and applied any income related to personal use of the aircraft 

What This Means for Businesses 

If your company owns or leases a corporate jet, it’s important to be aware of these increased audit risks. The IRS tends to audit the earliest possible year it can, which means businesses are likely to see audits for the 2021 and 2022 tax years, when bonus depreciation was at 100%. As bonus depreciation phases out starting in 2023, the potential for tax exposure will continue to evolve. 

For businesses that rely on corporate jets, now is the time to review your documentation and ensure you are prepared for a potential audit. Taxpayers should be ready to provide detailed records, including flight logs, passenger manifests, and any related expenses, such as hotels or car rentals for business trips. Companies should also be prepared to defend any bonus depreciation claims, particularly if there is any personal use of the jet. 

How Tonneson + Co Can Help 

Navigating the complexities of corporate jet taxation and IRS audits can be challenging. Our team of tax advisors at Tonneson + Co is here to help ensure your business remains in compliance with IRS regulations and takes full advantage of available tax benefits. If you have any questions about corporate jet tax breaks or are concerned about a potential audit, reach out to our experienced advisors for guidance. 

We’re here to support your business, help you maximize your tax savings, and navigate any IRS inquiries with confidence. Contact us today to learn more about how we can assist you with corporate jet taxation and other tax planning needs.