If you’re a high-income taxpayer who uses a corporate jet regularly, you’ll face extra scrutiny from the IRS beginning in 2024. Here’s what you need to know.
Why Are Audits Related To Business Aircraft Usage On The Rise?
Early in 2024, the IRS announced a new enforcement campaign intended to “improve tax compliance in high-income categories.” Funded in part by the 2022 Inflation Reduction Act, the campaign targets large corporations, large partnerships, and high-income individuals who mix business and personal use of corporate aircraft.
This is a complex area of tax law. Errors are common, primarily:
- Excessive corporate deductions because personal aircraft usage was designated as business usage.
- Failure to report personal use of aircraft as fringe benefit income.
Documentation requirements in this area are stringent. To allocate jet usage to the business or personal category, you need to show the business purpose for every passenger on every leg of every journey. And the records must be contemporaneous, not created after the fact.
What Triggers A Tax Audit Into Corporate Aircraft Usage?
In this campaign, the trigger is simply being:
- A large corporation or partnership that owns a private jet and allows personal and business use.
- A high earner (executive, officer, shareholder, partner, etc.) who uses a private jet for business and personal travel.
That doesn't mean that all taxpayers in this category will be audited, just that nothing more is needed to trigger the audit. The IRS does allude to using “advanced analytics” to identify auditees.
Audits can also be triggered by random selection, unusual tax filings, whistleblower reports, and relationships to other people/businesses with other ongoing audits.
What Can I Expect From The Audit Process?
If you or your business is selected for an audit:
- The IRS will send you a letter or visit you in person. It will ask for documentation about items on your tax return.
- You provide the documentation. In general, the IRS will only go back three years but can go back six years (or more) for suspected fraud or substantial errors.
- The IRS will send you a written decision with an explanation. You could get a “no changes” letter, meaning that your taxes were correct. If the IRS proposes changes, the changes could include penalties and fines. In rare cases, criminal charges are filed.
- You decide how to respond. You can accept the changes and pay the tax, or you can file a formal written protest. Another option is to pay the taxes and then sue in court for a refund. If you don’t file quickly enough, you can lose your right to protest or sue.
This article offers a deeper dive into the audit process.
How Can A Tax Controversy Attorney Help Me With An Aircraft Usage Tax Audit?
A tax controversy attorney can help you by:
- Communicating with the IRS on your behalf.
- Advising you about the law so you can make informed choices.
- Analyzing your tax situation and helping you gather documentation.
- Negotiating with the IRS for you.
- Preparing you for IRS interviews.
- Representing you in court, if necessary.
Having a tax controversy attorney at your side empowers you to make the best decisions for yourself and your business.
If You Are Contacted By The IRS, Seek Advice Right Away
If you are facing IRS scrutiny over aircraft usage, consult with the tax controversy attorneys at Hendershot Cowart P.C. Our tax attorneys have proven experience navigating IRS audits, examinations, and investigations on behalf of individuals and businesses. Our law firm also has an aviation law practice, making us uniquely suited to handle your matter.
