The IRS is planning to launch “dozens” of audits on business aircraft use to ensure tax compliance in high-income categories, the agency announced this week. Audits will focus on whether large corporations, partnerships, and high-income taxpayers are properly allocating between personal and business use for tax purposes.
Using additional funding received from the Inflation Reduction Act, the IRS said it plans to “closely examine this area, which has not been closely scrutinized during the past decade as agency resources fell sharply.” The agency further stated that the number of audits in this area could increase, depending on initial results and as it spools up on hiring additional examiners.
“Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin,” said IRS commissioner Danny Werfel. “With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”
However, NBAA president and CEO Ed Bolen protested the approach, saying the announcement “amounts to nothing more than an audit in search of a problem, and an attempt to broadly paint with a negative brush the thousands of U.S. companies of all sizes that rely on business aircraft to effectively compete in a global marketplace.”
He questioned why the agency would suggest that the companies, some of which are among the most respected and well-managed businesses globally, would be out of compliance. “For decades, studies have shown that companies utilizing business aircraft to successfully address some portion of their transportation challenges consistently outperform comparable companies without the asset.”
Acknowledging that business aircraft usage tax requirements are complex, the IRS called the audit initiative part of its Large Business and International division’s “campaign” program. Campaigns are designed to address areas with a high risk of non-compliance, the agency explained. Efforts surrounding campaigns included issue-focused examinations, taxpayer outreach and education, tax form changes, and addressing particular issues that lead to non-compliance.
Business aircraft usage is one of several areas where the agency is trying to address compliance in “complex, overlooked high-dollar areas” and it noted, as an example, that it has already collected $482 million in taxes owed by 1,600 millionaires as part of this effort.
"The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act,” Werfel said.