OceanFirst Financial Corporation

05/22/2024 | Press release | Archived content

Tax Currents - Under the Radar

May 22, 2024

The IRS is beginning to spend the additional funding allocated to it in the Inflation Reduction Act. On February 21, 2024, the Service announced that an early effort will be audits to determine whether corporate jets are ever used for personal travel.

The cost of a corporate jet is fully deductible to the extent that the jet is used for business purposes. If an executive uses the jet for personal travel, the value of that usage is taxable income to the executive. The personal use may also affect the deductions taken by the business.

IRS Commissioner Danny Werfel was quoted in the IRS announcement of the new initiative: "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."

This area of tax law is "complex" because any trip could have both a valid business purpose and a personal angle, such as a vacation when the business efforts are concluded.

How much money might be raised by these new audits? The IRS did not speculate, but there are an estimated 10,000 corporate jets operating in the U.S. They are worth tens of millions of dollars, and so are the deductions for owning them.

According to the IRS announcement, this is an area of tax law "which has not been closely scrutinized during the past decade as agency resources fell sharply" following the revelations of politicized IRS enforcement during the Obama administration. The IRS will be developing education materials for the operation of corporate jets, including recordkeeping requirements.

Another new enforcement effort by the IRS, focused on 1,600 millionaires, has resulted in $520 million in additional collections, according to IRS Information Release 2024-9. The Service is prioritizing high-income cases and balance sheet discrepancies in large partnerships. As of December 2023, audits of 76 of the largest U.S. partnerships were opened, employing artificial intelligence to identify compliance issues.

The IRS has been modernizing its hiring processes and holding more direct hiring events to better compete with the private sector and quickly bring top talent on board. More than 560 new accountants were hired in November and December last year, to provide the manpower needed for audits of high-income individuals, complex partnerships, and large corporations.

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