The Internal Revenue Service (IRS) said it’s using some of its recent $60 billion funding boost to crack down on improper accounting of personal use of business jets in a bid to squeeze more revenue from wealthier taxpayers.
Corporate aircraft are often used for both business and personal travel, with personal use of business jets impacting eligibility for certain deductions.
“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,” IRS Commissioner Danny Werfel said in a statement.
“With expanded resources, IRS work in this area will take off,” he continued. “These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”
While the tax code allows business deductions for the expense of maintaining assets like corporate planes, the use of such aircraft for personal travel generally reduces the amount that can be claimed. Personal use of a business jet should also normally be included in the income of the individual traveling, with implications for the amount of taxes owed.
There hasn’t been enough scrutiny of whether, for tax purposes, the use of jets is being properly allocated between business and personal reasons, the IRS said. So, in a bid not to leave money on the table and to send a signal to other taxpayers, the IRS is ramping up enforcement in this area.
To help with the crackdown, the IRS said it will be using “advanced analytics” as well as some of the money it got from its recent Congressional funding boost (initially pegged at $80 billion but later reduced to $60 billion).
The agency is now putting some of those high-tech enforcement tools—and hiring more examiners—to make sure that corporate fliers that do so for personal reasons pay enough tax.
“The IRS will begin conducting examinations in the near future as part of the agency’s commitment to ensuring fairness in tax administration,” the IRS said in its Feb. 20 statement.
New Compliance Crackdown
In October, the IRS announced four new initiatives targeting high-income, high-wealth individuals, and large corporations.One of these targets American subsidiaries of foreign companies that distribute goods in the United States but don’t pay enough tax.
“These foreign companies report losses or exceedingly low margins year after year through the improper use of transfer pricing to avoid reporting an appropriate amount of U.S. profits,” the agency said in a statement.
The second initiative relates to the IRS Large Business & International Division’s (LB&I) Large Corporate Compliance (LCC) arm, which is being expanded and will be auditing an additional 60 big corporations with assets worth over $24 billion on average.
The third initiative involves cracking down on abuse of a corporate tax break that was repealed several years ago, while the fourth targets individual taxpayers who make over $1 million in annual income and have over $250,000 in recognized tax debts.
The Treasury Inspector General for Tax Administration (TIGTA), which is the watchdog overseeing the IRS, said in a September report that the IRS would have a hard time making good on its $400,000 pledge because the agency doesn’t have a clear definition of “high-income” and many of its tax enforcers still use an outdated $200,000 threshold as their default.
Mr. Werfel said in recent testimony on Capitol Hill that his “marching order to the IRS” is not to increase audit rates for people making less than $400,000, but added that, “if we fall short of that, I will be held accountable,” hinting that even with the best intentions, there’s a chance overzealous enforcers might do so anyway.
