“For too long, private flight departments have relied on outdated spreadsheets to manage their tax records, which has meant a time-consuming and error-prone process,” says Ryan DeMoor, head of aviation tax, MySky. “The IRS, accentuated also last week by President Biden, has announced an increased focus on business aviation – at a time when there can be no room for error, MySky Tax provides the most advanced corporate aviation tax software on the market.” DeMoor is also chair, of the NBAA Tax Committee.

Also read: MySky (AI)ding business aviation operations

The new MySky Tax modules include Federal Aviation Administration (FAA) Timeshare Billing, Federal Excise Taxes and 280F Reporting. DeMoor says that this allows flight departments to remain fully compliant with tax reporting without relying on manual data entry. 

“The new reporting modules will enable business aviation users to remain fully compliant when taking advantage of bonus depreciation, while also managing highly regulated timeshare billing and complex Federal Excise Tax calculations,” said DeMoor.

MySky uses artificial intelligence to help aircraft owners and operators track costs.  The new tax modules were announced at NBAA Schedulers & Despatchers Conference (pictured).

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This was demonstrated 100 years after Clemens died when an employee of a museum dedicated to him was found guilty of fraud. She was forced to repay taxes on the money she had stolen.

This week the US Internal Revenue Service (IRS) announced plans to start audits on dozens (its figure) of business aircraft involving personal use. It says these will be focused on aircraft used by large corporations, large partnerships and high-income taxpayers.

The agency is focusing on business deductions for aircraft expenses. These are allowed if an aircraft is used for business purposes. However, if the aircraft is also used for non-work reasons it can affect the company’s right to deduct some costs. The IRS says that record-keeping can be challenging.

“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,” said Danny Werfel, IRS commissioner, in a press release focused on corporate jets. “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.”

It is not just the IRS. The Federal Aviation Association is also strongly opposed to business jets flying under radar.

The IRS says it can invest more resources into investigations thanks to funds from the Inflation Reduction Act. It says it could hire extra tax inspectors to focus on aircraft if it finds companies have been over-claiming.

“We are adding staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law,” said Werfel.

While no one suggests that business jet owners should avoid paying the correct amount of tax they owe, the National Business Aviation Association (NBAA) and others have questioned the tone of this campaign.

“Today’s announcement by the IRS amounts to nothing more than an audit in search of a problem”

“Today’s announcement by the IRS amounts to nothing more than an audit in search of a problem, and an attempt to broadly paint with a negative brush the thousands of US companies of all sizes that rely on business aircraft to effectively compete in a global marketplace,” said Ed Bolen, president and CEO, NBAA. “It is difficult to understand why the agency is suggesting that these companies – some of the most respected, well-managed businesses in the world – are not in compliance with applicable tax laws.”

The NBAA points out that directors at publicly traded companies routinely approve how staff use aircraft. Some businesses also require key employees to fly on business aircraft for safety and security reasons.

“One cannot say with any certainty that flygskam [flight shame] and heightened IRS scrutiny of corporate jet usage are directly connected – Aerlex has represented clients in IRS audits of their business jet ownership that occurred long before Greta Thunberg came on the scene – but I cannot help but feel that the IRS is responding, in part, to all the attention that has been given to high-profile private jet owners in recent years,” says Stephen Hofer, president, Aerlex Law Group.

As anyone who has walked through the cloud of mint watermelon fumes left by a vaper knows, there can be smoke without fire.

As anyone who has walked through the cloud of mint watermelon fumes left by a vaper knows, there can be smoke without fire.In 2017 reporting following the so-called Paradise Papers leaks was very critical about aircraft imported into the Isle of Man (it also looked at other offshore transactions in less humid islands like Antigua, Barbados and others).

The Isle of Man Government proactively invited the UK Treasury to review the processes used by its Customs and Excise regarding VAT treatment of aircraft and yachts. Two years later, the UK Treasury said it had found no specific cases of wrongdoing but did make some recommendations about monitoring deals which have been accepted and incorporated.

“Business aircraft owners should consider auditing their previous deductions for compliance with the applicable tax laws, analysing the after-tax value of deductions against the potentially high cost and invasiveness of an IRS audit, and seeking advice from professionals involved specifically in business aviation taxes to avoid errors in deducting expenses for personal use of, and aircraft depreciation deductions pertaining to, their aircraft,” says David Mayer, partner, Shackelford, Bowen, McKinley & Norton.

“Put your IRS auditor’s hat on before the IRS auditor arrives at your door.”

Aerlex’s Hofer agrees. “Business jet owners would be well advised to take this as both an advance warning and a wake-up call. Now would be a very good time to re-examine your business jet ownership and usage, both at the corporate accounting and flight department levels. Consider taking a careful look at your record-keeping and accounting for your airplane, both retrospectively and prospectively,” he says. “Put your IRS auditor’s hat on before the IRS auditor arrives at your door. Do an internal audit of the deductions you’ve taken and are taking, the expenses you are booking, and make certain you are comfortable that what you’ve recorded would pass muster if the folks from the IRS actually do show up.”

There is a definite advantage in getting ready before the IRS knock on your hangar. To update another of Clemens’ famous tax sayings: There is never a convenient time for tax audits, colonoscopies or root canals.

*He changed his name to Mark Twain for tax reasons.

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PIA matches two owners to share one aircraft and pairs them to an aircraft manager. Owners fly their aircraft, on their schedule at half the cost of traditional private aviation options, said the company. “We have owners across the country interested in bringing on a co-owner to share their aircraft and split the cost,” said Mark Molloy, president, PIA. “The programme, PIA Managed Co-Ownership, allows non-owner candidates to skip the waiting process and get into a new or used aircraft immediately. Because our clients typically fly 100 hours per year, both owners can fly all their trips – at half the cost.”

Launched in 2016, PIA Managed Co-Ownership plan matches co-owner candidates in the same region and provides the legal framework that allows two owners to securely share one aircraft. The programme is said to appeal to users flying 50-150 hours per year who prefer ownership to membership. And it complies with the requirements of FAA and Inland Revenue Service (IRS). Clients can enter the programme as current owners looking to sell half their aircraft or non-owners seeking a 50% interest in an aircraft. The company offers co-ownership opportunities in every turbine category, from turboprop and light jets to mid, super mid, and heavy jets and works with major OEMs.

Simon Elliott, a Florida resident and experienced aircraft owner, did not consider co-ownership when he  ordered his 2023 Praetor 600 two years ago. But Elliott reconsidered when his adviser suggested the PIA  programme. “Initially I was reluctant, but their legal team and structure made me comfortable with the model and I liked the math,” said Elliot. “I could choose my pilots and manager, which was crucial to me, and the co-owner they introduced me to is a great fit. I now have the aircraft I ordered at half the original cost.”

Another jet owner who tried the PIA co-ownership programme is Bruce Bonafiglia, a former Challenger 350 owner based in New York, who now co-owns a new Challenger 3500. “The programme made sense based on our limited usage, and PIA introduced me to a wonderful co-owner,” said Bonafiglia. “I’ve owned several aircraft and appreciate the value-proposition of splitting the capital and operating costs.”

It took several years for PIA’s client base to reach scale, acknowledges Molloy. “But we now have matches flying coast-to-coast and vetted co-owner candidates ready to be matched in every region of the country.” he said.

Most PIA clients come from membership and jet-card programmes, he added. “They are ready to move beyond their current membership programme but aren’t flying enough to justify whole ownership. The economics of co-ownership just makes sense to them,” said Molloy.

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After the contribution of bonus depreciation was highlighted in the previous week’s Town Hall, Banglesdorf made enquiries about the prospect of the benefit remaining available this year. According to her contact on the US Congress Committee on Ways and Means, 100% bonus depreciation is likely to remain in place this year.

“There may be other tax things that come up this year that could be negative for our industry but [the contact and committee colleagues] … don’t expect bonus depreciation to go away this year,” Banglesdorf told Town Hall delegates. 

There are even proposals to make “this flavour” of bonus depreciation for new and used equipment a permanent part of the tax code. “That would be great for us here in the US for people who need that kind of instrument to buy equipment or invest in equipment,” she said. “That would be really positive, but we may get hit with higher corporate taxes or capital gains taxes this year.”

‘Horrible airline schedules’

The Charlie Bravo Aviation CEO confirmed reports of a rising tide of new entrants into private jet aviation. The “horrible airline schedules” and concerns over safety were prompting many who had previously considered purchasing an aircraft to invest in one. A big change was that prospective buyers were spending more time in online research about the suitability of various models and the associated maintenance costs.

“Our buyers are more educated than ever before about the kind of models that are out there. People are really coming to the table with a lot more information.” Also the decision by the governors of Mississippi and Texas to relax the rules about the mandatory wearing of masks provided grounds for optimism. “To me, that signals we are getting back to normal.”

Banglesdorf concluded: “I still think we have a good year in front of us.”

During the previous Town Hall, Joseph Carfagna Jr, president, Leading Edge Aviation Solutions, predicted the prospects for business jet sales this year and beyond could  be shaped by tax changes introduced by the Biden administration.

 ‘A very robust market’

 If the government decided to to end the 100% bonus deprecation, it could make the legislation retroactive to January 1st 2021 or implement the new tax rules from January 1st 2022. “If that’s the case, we are going to have a year that will be a lot like the last half of 2020 for the remainder of 2021,” said Carfagna. “It will be a very robust market in the US if that’s the case.”

The website of the Internal Revenue Service (IRS) confirms: “The Tax Cuts and Jobs Act increased the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27th, 2017, and before January 1st, 2023.”

This week, the US Centers for Disease Control and Prevention (CDC) has confirmed that fully vaccinated Americans can meet other fully vaccinated people without masks or social distancing. CDC added that people are protected two weeks after they take the final dose of their vaccine. So far, more than 30m Americans have been fully vaccinated.

Meanwhile, the Town Hall online meeting – ‘Bringing in new flyers’ –  took place on March 3rd. Joining Banglesdorf in contributing to the forum were: David McCown, president, Air Partner Inc., Glenn Gonzales, founder and CEO, Jet IT, Mark Molloy, president, Partners in Aviation and Peder von Harten, vice president, Sales & Marketing, Nicholas Air.

René Banglesdorf told Town Hall delegates: “I still think we have a good year in front of us.”

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The Tax Cuts and Jobs Act, finalised on 2 December 2017, exempts private jet owners from paying taxes on various services, including maintenance and fueling.

Twitter users went into overdrive, believing that US private jet owners were exempt from all taxes.

However the fuss surrounds a two-part tax that is levied on every flight that an aircraft management company sells. The first part of that tax is set at 7.7%, the second is a flat amount for each individual flight.

Although this was originally introduced for airline passengers, it also applied to chartered private jet flights. But there was confusion surrounding whether the tax still would still apply to owners flying on their own aircraft.

Due to a lack of clarity with the language used in the original bill, the Inland Revenue Service (IRS) suspended taxing these flights in 2012. Although it later began auditing flights, it stopped doing this earlier this year.

According to a 2016 report by the Joint Committee on Taxation, the lost taxes would ammount to no more than $500,000 between 2017 and 2026.

Twitter was in uproar when details of the bill were released over the weekend, with some users helpfully tweeting the full applicable text:

However taxes on these flights haven’t applied since 2012, so the Bill simply clarifies that owner operated flights should not be taxed.

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