US IRS trains tax-audit sights on personal use of corporate jets
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[February 22, 2024]
By David Lawder
WASHINGTON (Reuters) -The Internal Revenue Service said on Wednesday it
plans to crack down on wealthy executives who may be using company jets
for personal trips but claiming the costs as business expenses for tax
purposes, as part of a new audit push to boost revenue collections.
The IRS announced that it will begin dozens of audits involving personal
use of business aircraft, focusing on large corporations, large
partnerships and high-income taxpayers.
The agency said it would use "advanced analytics" and other resources
from the 2022 Inflation Reduction Act, which provided $80 billion in new
funding over a decade for the IRS to modernize, improve taxpayer
services and beef up enforcement and compliance.
The IRS said the audits aim to determine "whether for tax purposes, the
use of jets is being properly allocated between business and personal
reasons." Audits could increase based on initial results and as the
agency hires more examiners.
The use of business aircraft is an allowable expense against a company's
profit, reducing its tax liability. But U.S. tax laws require that such
costs be allocated between business and personal use, requiring detailed
record-keeping.
IRS Commissioner Danny Werfel said this was a complex audit area where
the agency's work has been stretched thin by more than a decade of
reduced funding and declining staffing.
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"With expanded resources, IRS work in this area will take off. These
aircraft audits will help ensure that high-income groups aren't flying
under the radar with their tax responsibilities," Werfel said in a
statement.
The IRS did not specify how much additional taxes could be collected
from the audits. But for an executive using the company jet for personal
travel, it said the costs should be included as additional personal
income, and may reduce the firm's ability to deduct expenses associated
with the flight.
The National Business Aviation Association, which represents over 11,000
companies and professionals in the sector, called the IRS audit drive
"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."
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"It is difficult to understand why the agency is suggesting that
these companies - some of the most respected, well-managed
businesses in the world - are not in compliance with applicable tax
laws," the group said, adding that studies have shown that companies
using business aircraft outperform peers who do not.
The Inflation Reduction Act funds allowed the IRS to hire more than
5,000 staff to answer phones and process tax returns promptly,
modernize antiquated technology and rebuild enforcement by hiring
thousands of staff capable of handling audits of sophisticated
partnerships and tax avoidance schemes.
Republicans in the U.S. Congress have accused the Biden
administration of building an "army" of IRS agents to harass
Americans over their tax bills and have sought to rescind the
funding at every opportunity. A bipartisan top-line spending deal
for fiscal 2024 would cut $20 billion from the total over a year.
After an initial success of collecting $38 million from more than
175 high-income taxpayers, the IRS is pursuing audits of 1,600 other
wealthy taxpayers, with $482 million collected so far.
The Treasury and IRS now estimate that spending the full $80 billion
would increase tax collections by $561 billion over 10 years.
(Reporting by David Lawder in Washington; Editing by Matthew Lewis
and Christopher Cushing)
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