NBAA News Hour: IRS Audits Have Begun – What Bizav Operators Need to Know

Oct. 11, 2024

While there has been a noticeable uptick in IRS audits specifically targeting business aircraft usage, owners still have time to prepare before the main thrust of the federal agency’s investigation of personal use by large corporations, large partnerships and high-net-worth individuals begins.

That’s according to a panel of tax experts on the recent NBAA News Hour webinar: “The IRS Audits Have Begun — What BizAv Operators Need to Know Now.”
In February, the IRS announced that it was using Inflation Reduction Act funding to determine for tax purposes whether large companies and wealthy entities’ use of private jets was being properly allocated between business and personal reasons. This campaign, which NBAA strongly objected to, would include “dozens of audits” by the IRS Large Business and International Division. View NBAA’s statement.

The expected deluge of audits from that division has yet to be received, but they are expected to be soon. Before they arrive, aircraft owners can take some critical steps to prepare for a year or more of auditing, said the webinar panelists.

“This is the time to review your structure, think about your definition of what the business is and make sure that you know all of your business passengers are traveling in furtherance of the entity that owns the aircraft,” explained Joe Park, CPA, managing partner of BIZJETCPA. “You also need to prepare for the questions you’ll be asked. You are going to be asked for calculations, business documentation, logistical information, your flight logs, your dry leases, your management contracts.”

This will be unlike previous audits, noted Angel Houck, CPA, co-founder of Houck & Christensen CPAs. “In the past [the IRS] might have been looking at something else, and then found an aircraft on the balance sheet and started asking for information,” she said. “That world has vastly changed.

“The IRS is now going to be very specific, and they know what they’re looking for, so that means very detailed requests. They’ll want hotel receipts, car rental receipts from every single trip, extremely detailed information to show that the flight was a business purpose,” said Houck, adding that “the low-hanging fruit” of bonus and accelerated depreciation will be targeted as these deductions are easily reversed.

The IRS is also using advanced analytics to assist with the audit, so be prepared for the auditor to have detailed knowledge of each flight. That makes contemporaneous information even more critical, noted David Shannon, chair of the business aviation practice at Lewis Brisbois Bisgaard & Smith LLP and NBAA Tax Committee secretary.

“If you gather all pertinent information at the time of the flight, you’ll have it to hand over. If you don’t, it’s going to mean going back two or three years (maybe more) and trying to put this business documentation together – that’s brutal for the aircraft owner and their team. It also takes time, which typically means a request for an extension, and that’s going to automatically raise more questions because the IRS knows that now you’re putting together this documentation that was supposed to be done at the end of each trip,” Shannon said.

In addition to the potential federal audit, aircraft owners should also prepare for increased scrutiny from state auditors, who are becoming more informed about aircraft ownership and taxation, as well as possible adaptation to the tax code in 2025, the panelists said.

“A lot depends on how the upcoming elections go, but there are tax issues, especially expiring provisions in the 2017 Tax Cuts and Jobs Acts, that are expected to be addressed next year,” said Kristie Greco Johnson, NBAA senior vice president, government affairs. Now, how this goes will be determined by who controls the House, the Senate and the White House, and who’s writing the bills — whether it’s the chairman of the Ways and Means Committee or the chairman of the Senate Finance Committee.

“NBAA will remain steadfast in advocating for business aviation and educating those on the Hill about the value and importance of business aviation, how it connects communities, how it creates good union jobs, helps stimulate the economy of course and support humanitarian missions,” she said.
NBAA’s advocacy on this critical topic extends beyond the Beltway, added webinar moderator Ryan DeMoor, CAM, head of aviation tax at MySky US and NBAA Tax Committee chair.

“The NBAA Tax Committee has created lots of resources for you. This is a complex area of tax law, and you’re not supposed to know this stuff,” he said. “That’s why we’ve adapted our upcoming Tax Conference to place an increased focus on what’s happening. We typically like to go broader on these discussions, more like a 101 course, but this year, we are upping the level to more of a 401 intensity to help you fully understand what’s happening.”

Learn more about the 2024 NBAA Tax, Regulatory & Risk Management Conference being held in Las Vegas, NV, Oct. 20-21.