Some of the hinderances to IRS audits of high income taxpayers and corporations are:
taxpayer use of complex income shifting;
personal use of corporate assets;
business expenses to personally benefit an individual instead of the business; and
taxpayer well-staffed accountant and lawyer teams who are well-paid to devise tax avoidance schemes.
Nevertheless, the IRS has announced that it is intensifying its examination strategies to address high-risk areas of non-compliance. One such area is increased use of audits targeting the utilization of business aircraft for personal purposes.
Employing sophisticated analytics and leveraging resources provided by the Inflation Reduction Act, the IRS will intensify its scrutiny of corporate jet usage, which has seen a decline in oversight due to resource constraints over the past decade. The number of audits in this domain may escalate based on initial findings and the agency’s ongoing efforts to bolster its examining workforce.
The audits will primarily focus on distinguishing between business and personal use of company aircraft, a nuanced task given the dual purposes often served by these assets. While tax regulations permit deductions for business-related expenses associated with corporate jets, allocating usage between business and personal travel poses significant challenges, particularly in terms of record-keeping.
For individuals utilizing company jets for personal travel, the extent of personal usage directly impacts eligibility for certain business deductions. Moreover, personal usage may trigger income inclusion for the individual and could potentially affect the business’s ability to deduct costs related to such travel.
The IRS says its intensified scrutiny on high-income individuals and entities signifies a broader commitment to closing the tax gap and ensuring fairness in tax administration.
Kenneth Athon Tax Strategies 