Non-Business Use of Employer-Provided Aircraft | NBAA - National Business Aviation Association

Twitter

Facebook

NBAA Personal Use of Business Aircraft Handbook

Occasionally a business airplane is made available to employees for reasons not directly related to the business of the company. Aircraft operators must be familiar with the tax and regulatory implications of these flights.

The NBAA Personal Use of Business Aircraft Handbook summarizes the tax rules for companies to calculate the amount of the taxable fringe benefit to report to their employees, directors and independent contractors who use the company’s aircraft for personal purposes.

The handbook also addresses tax rules dealing with the calculation of a company’s nondeductible expenses under the entertainment disallowance as amended by the American Jobs Creation Act of 2004.

Download the NBAA Personal Use of Business Aircraft Handbook (685 KB, PDF)

Additional Personal Use Resources

FAA Compliance

The FAA has a general prohibition on employees reimbursing companies for personal flights when the aircraft is operated under Part 91 of the Federal Aviation Regulations. However, based on a 2010 FAA legal interpretation, some companies may be allowed to seek up to full-cost reimbursement for such trips if specific conditions are met. Review NBAA’s resource, FAA Legal Interpretation Permits Reimbursements for Certain Personal Flights.

Also, other exceptions to the general prohibition on reimbursement may be possible, such as a timeshare agreement between the company and the employee, or payment to the charter operator if the aircraft is on a Part 135 charter certificate.

IRS Compliance

In most cases since the employee cannot pay the company for non-business flights, there is a taxable fringe benefit to be calculated. The value of the flight, or a portion thereof, must be included in the employee’s income.

Valuing Non-Business Flights

When calculating the value of a flight deemed to be taxable, the IRS allows operators to choose between two different methods. The first method uses the fair market value or charter value of the flight. This method looks at the cost of chartering the same or comparable aircraft for the same or comparable flight. The second and more common method determines the value of the flight using a formula that the IRS calls the Standard Industry Fare Level (SIFL).

Deduction Limitations for Personal Entertainment Flights

A provision contained in the American Jobs Creation Act of 2004 limits the ability of a company to deduct the aircraft expenses for certain non-business flights for specified individuals. Under the Act, the difference between the actual cost of personal entertainment flights taken by “specified individuals” and the amount included in income by these employees is disallowed as a deduction to the corporation.

Review the American Jobs Creation Act of 2004 web resource.

SEC Compliance

Providing a company aircraft to an executive officer or director for his/ her personal use generally requires disclosure in Securities and Exchange Commission (SEC) reports for publicly held companies. Public companies must report the aggregate incremental cost associated with personal flights, which means the cost to the company of the personal flights, not the tax value of the benefit.

Use Of Corporate Aircraft by Executives of Public Companies: Should Tax Consequences be Disclosed? , By Alvaro Pascotto
Personal Use of the Company Aircraft: IRS vs. FAA vs. SEC, By James E. Cooling and Joanne M. Barbera
Use of Business Aircraft: Securities Law Considerations, By Alvaro Pascotto
Personal Entertainment Use of Corporate Owned Aircraft, By George P. Rice

Additional Resources

If you have questions or feedback about these publications or related topics, contact NBAA’s Peter Korns at 202-783-9285 or pkorns@nbaa.org.

News

Standard Industry Fare Level (SIFL) Rates for the Second Half of Calendar Year 2019 Aug. 16, 2019: The U.S. Department of Transportation recently released SIFL rates for the six-month period from July 1 to Dec. 31, 2019. These rates are necessary when applying the IRS aircraft valuation formula to compute values of non-business transportation aboard employer-provided aircraft.
Standard Industry Fare Level (SIFL) Rates for the First Half of Calendar Year 2019 Feb. 28, 2019: The U.S. Department of Transportation recently released SIFL rates for the six-month period from Jan. 1 to June 30, 2019. These rates are necessary when applying the IRS aircraft valuation formula to compute values of non-business transportation aboard employer-provided aircraft.
Standard Industry Fare Level (SIFL) Rates for the Second Half of Calendar Year 2018 Aug. 21, 2018: The U.S. Department of Transportation recently released SIFL rates for the six-month period from July 1 to Dec. 31, 2018. These rates are necessary when applying the IRS aircraft valuation formula to compute values of non-business transportation aboard employer-provided aircraft.
Standard Industry Fare Level (SIFL) Rates for the First Half of Calendar Year 2018 March 5, 2018: The U.S. Department of Transportation recently revised SIFL rates for the six-month period from Jan. 1, 2018, to June 30, 2018.
American Jobs Creation Act of 2004 March 24, 2017: The IRS released final regulations that disallow deductions for certain personal entertainment flights.
Use Of Corporate Aircraft by Executives of Public Companies: Should Tax Consequences be Disclosed? Aug. 30, 2013: SEC rules require disclosure of aggregate incremental for non-business flights by executives
IRS Final Regulations on Deduction Limitations for Personal Entertainment Flights March 11, 2013: The IRS relesed final regulations on entertainment use of business aircraft, the NBAA website provides a link to the final regulations and an article detailing the changes.
IRS Issues Proposed Regulations on Entertainment Use of Business Aircraft July 30, 2007
Personal Entertainment Use of Corporate Owned Aircraft Dec. 12, 2005: The American Jobs Creation Act of 2004 (the ‘Act”) will have significant impact on the federal income tax liability of the corporate aviation community. In May 2005 the Internal Revenue Service issued Notice 2005-45 entitled Employer-Provided Aircraft, Limit on Deductibility (“Notice 2005-45”) which provides interim guidance on the administration of the Act as it relates to the personal entertainment use of corporate-owned aircraft.
Use of Business Aircraft: Securities Law Considerations Oct. 17, 2005: It is not uncommon for businesses to make corporate aircraft available to their executive officers and directors for a variety of purposes. Most companies are well aware that use of corporate aircraft for personal purposes raises tax issues for the company and the individual. However, if the company is publicly traded, there are also significant securities law issues to be considered including disclosure obligations, the potential impact of aircraft usage on the independence of outside directors and the risk that aircraft usage might violate the prohibition in Sarbanes-Oxley against loans to officers and directors.
IRS Publishes Guidance for Calculating Disallowance of Expense Deductions for Recreational Use of Corporate Aircraft June 20, 2005: The Act overrides the Sutherland Lumber decision by limiting a taxpayer’s ability to deduct aircraft depreciation and operating expenses when the aircraft is used to provide transportation to certain “Specified Individuals” for entertainment, amusement, or recreational purposes.
Personal Use of the Company Aircraft: IRS vs. FAA vs. SEC June 1, 2005: With public companies falling under the investigative microscope of the Securities and Exchange Commission (“SEC”) and other investor protection groups, and with increased responsibility for CEOs and CFOs for the contents of reports to investors under the Sarbanes-Oxley Act of 2002, executives and directors are looking more closely at the reporting methods of their companies. One of the more common items of investigation and interest is full disclosure (or in some cases lack of disclosure) of top executive compensation including “perks”. “Perks” may include executives’ and directors’ personal use of company aircraft.

Twitter

Facebook