Sept. 17, 2021

The IRS has released a chief counsel advice (CCA) memorandum dealing with the disallowance of certain entertainment expenses under Internal Revenue Code (IRC) Section 274. Specifically, the CCA analyzes how a sole proprietor that owns an aircraft may determine the potential deductibility of expenses for aircraft use.

While CCA memos cannot be used or cited as legal precedent, they represent the IRS Chief Counsel’s position on a certain set of facts. For sole proprietors that own a business aircraft, this CCA explains that allocation rules related to entertainment use flights under IRC Section 274 do not apply. The IRS reached this conclusion because of the unique non-employee status of sole proprietors.

In stating that the specific allocation rules in the Treasury Regulations do not apply to sole proprietor flights, the IRS explained that it was not taking a position on how sole proprietors allocate costs when multiple purposes are involved in a passenger’s travel or multiple passengers are on a flight.

In a comprehensive, members-only resource, NBAA Tax Committee member John Hoover explains the impact of the CCA for sole proprietor structures and discusses reasonable allocation methods for mixed-purpose flights.

IRS Chief Counsel Advice Provides Guidance on Entertainment Disallowance for Sole Proprietors