NBAA Tax Conference Session Helps Attendees Navigate Personal Use Requirements

Oct. 20, 2024

With the firewall between business and personal use of business aircraft under enhanced scrutiny from the IRS and other agencies, a session at the 2024 NBAA Tax, Regulatory & Risk Management Conference addressed how to ensure business aircraft flight departments operate on the right side of regulations.

When juggling requirements not only for the IRS, but also the FAA – and for publicly traded companies, the Security and Exchanges Commission – GKG Law Principal Letisha D. Sailor recommended adopting a “multi-dimensional” approach.

“The IRS looks at proper reporting and computing of income; the FAA looks at whether or not you’re safe,” she said during the conference’s opening session, held ahead of the 2024 NBAA Business Aviation Convention & Exhibition (NBAA-BACE) “Look at the agency objective when interpreting [what they’re looking for].”

That includes proper determination of the primary purpose of a given flight, which often comes down to a simple question of what motivated the “control” employee (often the “boss” or principal) to use the airplane.

“The owner or businessperson taking the flight thinks everything is business,” added Sue Folkringa, an aviation taxologist with Aviation CPAs. “That’s not a bad thing, because they’re out there thinking about and conducting business. But it’s the tax professionals in their flight department who must watch those flights closely and say, ‘Well, maybe this one isn’t really a business flight.'”

That may include flights taking clients to a major sporting event. “You can’t simply say, ‘We talked business on the airplane,” Folkringa said. “That’s clearly entertainment.”

There’s also personal, non-entertainment travel, which falls somewhere between the two. “That’s often travel for a business purpose, but not related to the purpose of the company operating the aircraft,” Sailor added, using the example of a company principal traveling to inspect real estate holdings.

Many companies utilize dry leases, in which they rent the aircraft from an owner, but provide their own pilots and crew. While there can be tax benefits to such arrangements, a dry lease does not mitigate the company’s responsibilities.

“You still have operational control,” Sailor said. “That means you have primary liability for that flight. There’s no brightline test, but there are factors that we go through to ensure that someone really is in control of their aircraft and taking liability.”

Companies must also be able to determine the travel purpose for the non-control employees on a given flight, imputed income to those traveling onboard and direct versus aggregate incremental costs for the trip.

If those are unfamiliar terms to flight department personnel, Folkringa urged those in attendance to get up to speed quickly. “We’re not just talking about [large companies] being audited for their personal use of aircraft,” she said. “It’s going to happen to a lot of people in this room, too.”

View NBAA’s Tax Resources.