IRS will take tough action against business jet users who abuse tax laws

Why it matters

The agency's focus on using corporate jets comes as it is under pressure to show it is making good use of the funding provided by Congress. Lawmakers have already agreed to take back $20 billion of the $80 billion it received, and Republicans in Congress, who have tried to deprive the IRS of resources for years, have tried to take even more of its money Pull.

The Biden administration estimates that almost $700 billion per year of tax revenues owed to the federal government are not collected. She has promised to eliminate that so-called tax gap with more audits of companies and the wealthy.

Last month, the IRS said it had collected money $482 million from 1,600 millionaires as it has stepped up its enforcement efforts.

Background

The tax law allows companies to deduct the costs of maintaining a business aircraft, as long as it is used for business purposes. However, many companies allow executives, shareholders and partners to use company aircraft for personal travel while continuing to claim the full value of those deductions.

The IRS audits will go beyond the companies that own the planes to include wealthy passengers, who the tax authorities say should report these trips as income.

Sales of business jets rose following the 2017 tax legislation passed by Republicans. That law improved a deduction known as bonus depreciation allowed to deduct the full cost of an aircraft in the first year of ownership.

Mr. Werfel estimated that there were tens of thousands of corporate jets operating in the United States and that a significant portion of tax revenue was slipping through the cracks.

“On a given taxpayer's tax return, the amount of the air travel deduction could be tens of millions of dollars,” Mr. Werfel said. “That's why it's so important that we get this right, because the amount of the deduction, given the value of the asset, is so material.”

What's next

Distinguishing between business and personal travel isn't always easy, and the IRS could be forced to file lengthy lawsuits as it tries to audit some of the nation's top flyers over their use of corporate jets.

The agency said it would start with an initial wave of up to four dozen audits of business jets before seeking to expand the effort.