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| Buy and Fly |
Leveraging a Loophole
07/01/2004
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Recent court decisions have established that companies can deduct all of the
expenses of a business aircraft, even those incurred during flights taken by
shareholders, employees or partners for personal reasons. However, a personal
trip on a corporate aircraft is considered a fringe benefit, and that traveler
must report the value of the flight as part of his or her taxable income.
 The standard IRS method for calculating the value of a personal flight is
called SIFL (Standard Industry Fare Level), which calculates a trip’s value
based on factors including the weight of the aircraft and the number of miles
traveled, multiplied by a standard markup. For example, someone traveling on a
midsize jet will pay 14.5 cents per mile multiplied by 300 percent. Under this
rule, a person traveling 2,000 miles round-trip on vacation would have to claim
$870 of unearned income. However, the potential tax benefit of the flight in
terms of operating expenses and depreciation could be many times that
amount.
This can be a sizeable loophole for closely held companies, such as S
corporations and limited partnerships, in which a portion of the tax benefit of
airplane ownership flows to each partner’s personal income tax. “In that
situation you can see your personal income tax reduced by, in some cases, 10
times what you are having to claim in added income for each flight,” says tax
attorney Richard Johnson, of Waller, Lansden, Dorch and Davis in Nashville. Back to main article: "Buy and Fly"
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