An ‘Industry Under Attack’ Readies for Targeted IRS Audits

Oct. 20, 2024

Although the annual NBAA Tax, Regulatory & Risk Management Conference addresses a variety of subjects across those three areas of business aviation operations, the specter of targeted IRS audits looms large among attendees at this year’s record-breaking event.

The agency announced in February that dozens of companies and individuals utilizing business aircraft would be under the microscope for claimed depreciation and deductions for business use of aircraft. NBAA President and CEO Ed Bolen noted the agency accused companies of “intentional noncompliance” with policies governing personal use of business aircraft.

“We are an industry under attack,” Bolen added in kicking off the conference, held ahead of the 2024 NBAA Business Aviation Convention & Exhibition (NBAA-BACE). “Make no mistake about that. Now here’s the good news: we happen to be an industry that is prepared.”

That preparation begins with keeping accurate records, said Richard Farley, Jr., a director with PriceWaterhouseCoopers. “The IRS can look back three years for a federal audit,” he added. “If you or your clients haven’t kept great records, you want to get them together right now.”

Ernst & Young Tax Partner Greg Rosica likened the situation to “storm prep” in his home state of Florida. “Sometimes you get ready for a hurricane, and nothing comes,” he said. “It’s still just a good exercise to make sure everything’s tied down and there aren’t any loose shingles.”

A storm is coming for many business aircraft operators. An audience poll showed 20% of attendees have already been involved in an IRS audit this year, with that percentage likely to skyrocket in the next 12 months.

“They’re looking at dozens of companies, and looking at their analytics,” Farley said. “By this time next year, we’re going to have a lot more stories. And once selected [for an audit] unfortunately it’s going to take a while to get through.”

That said, flight departments shouldn’t panic when their aircraft owner or principal receives the information document request that precedes a formal audit. Farley noted such requests will often include flight logs, personal use SIFL calculations and Section 280F depreciation calculations, among other pertinent details.

Companies may also be asked to provide information on when the aircraft was placed into service, with Farley noting the IRS has employed specialized field auditors familiar with the nuances of business aviation operations.

It’s frustrating when people don’t know anything about what they’re looking at,” Rosica added. “I think you can come to a reasonable answer when everyone involved understands the subject.”

Rosica noted some more “good news,” in that the IRS Large Business and International Division tasked performing these audits has published guidance outlining the typical audit process. “[That guidance] is not law, but it shows us what’s in the code and what their methods [of investigation] are,” he said.

View NBAA’s Tax Resources.