WASHINGTON, D.C. — As part of a concerted endeavor to reinforce tax compliance, particularly among high-income sectors, the Internal Revenue Service (IRS) revealed plans to initiate a series of audits concentrating on the use of business aircraft for personal reasons. Employing funds from the Inflation Reduction Act, this new strategy aims to delve into the use of jets by large corporations, partnerships and high-income taxpayers, and verify the accurate tax allocation for business and personal use.
The IRS will harness advanced analytics and resources allocated by the Inflation Reduction Act to intensify scrutiny on this segment which has been largely ignored for the past decade due to dwindling agency resources. Based on the preliminary results, we could see an escalation in the number of aircraft usage audits in the future as the IRS recruits more examiners.
“During tax season, millions of people are doing the right thing by filing and paying their taxes, and they should have confidence that everyone is also following the law,” stated IRS Commissioner Danny Werfel. “Personal use of corporate jets and other aircraft by executives and others have tax implications, and it’s a complex area where IRS work has been stretched thin. With expanded resources, IRS work in this area will take off. These aircraft audits will help ensure high-income groups aren’t flying under the radar with their tax responsibilities.”
Business aircraft, particularly those owned by corporations, are often employed for both business and personal reasons by officers, executives, other employees, shareholders and partners. As per a tax code passed by Congress, businesses are permitted to claim a deduction for maintaining an asset, like a corporate jet, given it is used for a business purpose. However, the use of a company aircraft must be split between business use and personal use- a complicated aspect of tax law where record keeping has proven challenging.
For an executive using the company jet for personal travel, the extent of personal usage could affect eligibility for certain business deductions. In turn, this would reflect as personal income inclusion for the executive and could impact the business’s eligibility to deduct costs related to the personal travel.
The IRS’s inspection of corporate jet usage is part of a larger “campaign” program under its Large Business and International division. The program’s objective is to address areas with a high risk of non-compliance in innovative ways, including issue-focused examinations, taxpayer outreach and education, tax form changes, and a concentrated focus on specific high-risk issues.
In the near future, the IRS will initiate examinations as part of its pledge to ensure fairness in tax administration. This is part of a wider IRS initiative to ensure that large corporations, partnerships and high-income individuals comply with their tax responsibilities. The Inflation Reduction Act has provided the necessary boost to the IRS’s budget, allowing it to catch up with the increasingly complex strategies employed by the wealthiest taxpayers to manipulate their income and evade taxes.
In addition to corporate jets, the IRS has several measures in place to improve tax compliance in complex, high-dollar areas that were previously overlooked due to lack of resources. One such initiative targets millionaires who have failed to pay hundreds of millions of dollars in tax debt. So far, ongoing efforts have succeeded in recouping $482 million in taxes owed by 1,600 millionaires.
The IRS is also tackling multi-million-dollar partnership balance sheet discrepancies and has increased audits of more than 75 of the largest partnerships using artificial intelligence (AI). Commissioner Werfel stated that the IRS is determined to increase scrutiny on high-income taxpayers to rectify the historically low audit rates and limited focus encountered by the wealthiest individuals and organizations before the Inflation Reduction Act.
As part of these renewed efforts, additional staff and technology have been deployed to ensure that all taxpayers, including partnerships, large corporations and millionaires, pay what they are legally bound to under federal law. Werfel added, “The IRS will have more announcements to make in this important area.”
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