IRS Announces New Campaign to Audit Personal Use of Business Jets

The IRS announced a new campaign to audit high-net-worth taxpayers claiming business deductions for the use of private jets. Using some of the $80 million allocated for enhanced enforcement in the Inflation Reduction Act of 2022 (IRA), the IRS plans to begin "dozens of audits" to determine whether large corporations, large partnerships and high-income taxpayers are properly allocating private aircraft flights between business and personal uses.

In general, expenses related to assets used for business purposes, including private jets, may be deducted by a business. However, as private jets owned by companies and individuals are often used by partners, shareholders and executives for nonbusiness reasons, flights for personal and business uses must be properly apportioned to calculate deductions.

As this campaign takes off, large corporations and high-income individuals who own private aircraft should consider:

• reviewing deductions from prior tax years to help ensure compliance with current tax law
• identifying and gathering documents and information relevant to the calculation of past deductions
• partnering with an aviation law counsel to create a documentation system for future tax years, as recordkeeping can be complex in this area
• seeking advice and guidance from professionals with experience in aviation tax audits

The new IRS campaign comes as the Biden Administration announced plans to increase the cost of owning and operating private jets. On March 11, 2024, President Joe Biden released his 2025 federal budget proposal that included plans to alter a tax write-off for private jet purchases, as well as raise taxes on fuel used for private jets. President Biden also mentioned this initiative in his State of the Union address on March 7, 2024.

Holland & Knight will continue to monitor developments on this issue. For additional information or questions regarding audits or structuring alternatives, please contact the authors or another member of the firm's Tax Practice or Aviation Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.