Academic journal article Journal of Accountancy

Deducting Costs of Flights on Corporate Jets

Academic journal article Journal of Accountancy

Deducting Costs of Flights on Corporate Jets

Article excerpt

The Internal Revenue Service has disallowed a company's deductions for the costs of using its aircraft to transport a company officer/ shareholder and spouse to and from vacation sites in the United States (technical advice memorandum (TAM) 9715001). The IRS views such travel as entertainment that is nondeductible under Internal Revenue Code section 274; therefore, the company's deductions are limited to the amounts it treated as compensation to the officer.

Ninety percent of the company's use of the aircraft was for business purposes. With respect to the vacation flights, the company fully complied with income and payroll tax rules for personal flights, using the 1985 special valuation rules of section 1.61-21(g) to determine the amounts to be treated as compensation.

For more than a decade, taxpayers have assumed that the personal use of a corporate jet will not jeopardize deductions if the special valuation rules are properly followed. The IRS, however, says that while the section 274 disallowance rules may preserve the deduction for the compensation that is imputed, the rules are otherwise unaffected by the company's compliance with the special valuation rules. …

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