Aerlex Law Group

IRS Audit Program for Business Jet Owners

IRS Audit Program for Business Jet Owners Means More Unwanted Scrutiny for Private Aviation

by Stephen Hofer
Aerlex Law Group President

Coming home to roost?

Since the Los Angeles Daily Journal identified me, some 20+ years ago, as the “Aviation Attorney to the Stars,” that moniker has amused but seldom embarrassed me.  I have found that my celebrity and other high-net-worth clients are, for the most part, serious consumers of their private aircraft and use them professionally and responsibly, flying when the mission, destination, passenger load, etc., warrant.  They are also concerned, as we all are, by the environmental impact of jet airplane travel, but also appreciate the fact that modern, state-of-the-art private jet engines generally emit far less pollutants into the atmosphere than the average commercial airliner.  Aerlex also has counseled its clients – corporations and regular folks who just happen to have made enough money in their lives to afford their own airplane, as well as celebrities – on various ways to reduce emissions and meet climate goals, including the use of legitimate and verifiable carbon offset programs, regular care and maintenance of equipment, and insistence on the use of Sustainable Aviation Fuel or “SAF,” rather than fossil fuel, when and wherever SAF is available.

All that being said, private jet travel is now increasingly in the crosshairs of environmental activists – and governments are starting to take note.  The dissent was initially focused on Europe, where the “flygskam” or “flight shame” movement first took root, but given the high profile of American private jet owners, it was only a matter of time before the ripples began to spread across the Atlantic.

I was very disturbed when I saw an article in the September 2022 issue of Los Angeles Magazine entitled, “From Kylie to Elon, the Heels of Private Jet Culture Are on Notice.”  The lead-in hook for the story was a social media exchange between two celebrities – neither one of whom was an Aerlex client – both of whom owned private jets, both of which were pictured parked side-by-side on the ramp at Van Nuys Airport, and the question posed online was “You wanna take mine or yours?” – for a 40-mile flight from Van Nuys to the Camarillo Airport, which would then lead, in turn, to a drive back to a home in Calabasas, a mere 15 miles by car if driven directly.  I blanched when I read this article – it was most definitely not a great look.  Since then, there have been several noticeable spikes in the news coverage of celebrities and their private jet travel, both in the entertainment press and general media, and it’s seldom favorable in tone.

I was reminded of all this Wednesday when I read a press release published online by the folks at the United States Internal Revenue Service entitled “IRS begins audits of corporate jet usage; part of larger effort to ensure high-income groups don’t fly under the radar on tax responsibilities.”  You can read it yourself on the IRS’s website by clicking here.

The IRS announced that it will conduct “dozens of audits on business aircraft involving personal use.  The audits will be focused on aircraft usage by large corporations, large partnerships and high-income taxpayers and whether for tax purposes the use of jets is being properly allocated between business and personal reasons.”

IRS Commissioner Danny Werfel explained the program with a couple of obvious and painful puns designed to curry media attention.  “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.  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.”

One cannot say with any certainty that “flygskam” and heightened IRS scrutiny of corporate jet usage are directly connected – Aerlex has represented clients in IRS audits of their business jet ownership that occurred long before Greta Thunberg came on the scene – but I cannot help but feel that the IRS is responding, in part, to all the attention that has been given to high profile private jet owners in recent years.

Whatever the motivation, rather than wringing our hands about this issue, business jet owners would be well advised to take this as both an advance warning and a wakeup call.  Now would be a very good time to reexamine your business jet ownership and usage, both at the corporate accounting and flight department levels.  Consider taking a careful look at your record-keeping and accounting for your airplane, both retrospectively and prospectively.  Put your IRS auditor’s hat before the IRS auditor arrives at your door.  Do an internal audit of the deductions you’ve taken and are taking, the expenses you are booking, and make certain you are comfortable that what you’ve recorded would pass muster if the folks from the IRS actually do show up.

Aerlex has counseled hundreds of clients over the years on how to qualify their aircraft purchases legitimately for exemption from sales and use tax in multiple states and I have told clients on many occasions that it’s useful to consider applying the same high degree of attention to record-keeping retention after you qualify for the sales and use tax exemption that it took to obtain the exemption in the first place – because that same documentation, showing flights, passengers onboard, business or personal reasons for travel, etc., can be absolutely essential in defending a federal or state income tax audit.  And if you have any doubt as to whether what you’re doing is right or adequate, give us a call — 310-392-5200.