June 21, 2021
The IRS announced that alternative Standard Industry Fare Level (SIFL) rates for the first half of 2021 (Jan. 1-June 30) can be used by operators due to the significant COVID-19-related impacts on the standard rates. This issue was first raised to the IRS and U.S. Department of Transportation (DOT) by NBAA, which led to the recent IRS announcement.
When business aircraft are made available to employees for non-business flights, employers must generally impute the fringe benefit as part of the employee’s taxable income.
One of the methods operators can use to calculate the value of such non-business flight uses the SIFL rates calculated every six months by the DOT and formally published by the IRS. These SIFL rates, which date back to the deregulation of the U.S. airline industry, use airline capacity as well as fuel and non-fuel components to calculate a value that typically approximates a first-class fare.
The standard SIFL rate calculation for the first half of 2021, however, is impacted by the 30% drop in available seat miles forced on U.S. airlines by the COVID-19 pandemic and the government relief provided to the airline industry through the Coronavirus Aid, Relief and Economic Security (CARES) Act’s Payroll Support Program (PSP). For the six months starting Jan. 1, 2021, the standard SIFL rate is 45% higher than the previous reporting period, reaching record values during a time when the business aviation sector is showing a robust post-pandemic revival.
“NBAA was quick to realize that the combination of the pandemic and resulting relief package would significantly disrupt SIFL rates,” said Scott O’Brien, NBAA senior director, public policy and advocacy. “NBAA took the initiative to educate officials at DOT and the IRS regarding the significant and unprecedented changes in the rates and we thank them for responding to industry concerns.”
Earlier this month, the IRS recognized the impact of the pandemic and government relief on the latest SIFL rates by allowing taxpayers to use the two alternatives to the standard rate to mitigate the effect of PSP Grants and PSP Promissory Notes on the calculations for the first half of 2021. In contrast to the 45% increase in the standard SIFL rates, these alternative rates are more consistent with historic rate changes.