Companies that allow executives or their families and guests to fly on their aircraft for certain personal reasons will most likely be adversely affected by IRS Notice 2005-45’s deduction limitations.
Taxation in the United States
The House of Representatives approved the American Jobs Creation Act of 2004 (H.R.4520) on June 17, paving the way for a one-year extension of the time allotted to place into service business aircraft purchased under the accelerated-depreciation tax bonus.
Personal use of corporate aircraft is coming under increasing attack by Congress.
A bill has been submitted in the House of Representatives that seeks to restrict a company’s ability to deduct certain portions of a flight conducted for personal use.
Titled the Corporate Jet Tax Shelter Reform Act of 2004, H.R.4352 was referred to the House Ways and Means Committee for further action.
A tax seminar specifically geared toward Part 135 air-charter operators will be held on May 17 in Las Vegas in conjunction with the National Air Transportation Association’s annual convention. The seminar will be presented by Nel Sanders-Stubbs, a partner with Conklin & de Decker business-aviation costing analysts of Orleans, Mass.
California has amended its aircraft sales and use tax law, essentially closing a loophole that allowed buyers of aircraft and other big-ticket items to escape paying sales taxes.
Although an article in The Washington Post last month implied that the Internal Revenue Service now sanctions the extensive personal use of company aircraft by owners and employees while the company takes a full deduction for the costs of owning and operating the airplane, several aviation tax attorneys counter that it merely sheds new light on the way the IRS views such matters.
The General Aviation Manufacturers Association has launched a campaign to extend the accelerated-depreciation schedule on new capital equipment–including business aircraft–which it calls a “defining factor” in $2 billion in jet sales. GAMA also wants to increase the period of time between the aircraft purchase date and when it has to be placed in service to qualify for the added tax incentive.
While general aviation interests hailed the tax law that extended the deadline for the 50-percent accelerated bonus-depreciation allowance for business aircraft, the law also contains a provision that severely limits expenses that a company may deduct when employees use an employer-provided aircraft for personal travel.
The Internal Revenue Service recently published Revenue Procedure 2003-85, which provides inflation-adjusted items for 2004. Section 3.27 specifies the rates for 2004 for the domestic segment fee and the international arrival/departure tax, applicable for commercial air transportation.
Michigan Gov. Jennifer Granholm recently signed legislation that exempts the sales tax on aircraft parts installations performed in the state for customers who do not reside or base their aircraft in Michigan. The new law also provides a waiver from taxes associated with purchasing an aircraft in Michigan by buyers who do not live or keep their aircraft in the state.