Corporate jet deductions in Congress’s crosshairs

Aviation International News » July 2004
April 2, 2007, 6:31 AM

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.

Meanwhile, Sens. Kay Bailey Hutchison (R-Texas) and Mary Landrieu (D-La.) sponsored an amendment to the Jumpstart Our Business Strength Act (S.1637) that would limit the amounts of deductions, including depreciation, for expenses relating to personal travel on a business aircraft.

H.R.4352 was introduced by Rep. Rahm Emanuel (D-Ill.) and 10 other Democrat cosponsors. It would amend the Internal Revenue Code of 1986 to deny a deduction for the portion of employer-provided vacation flights in excess of the amount of such flights that is treated as employee compensation.

Emanuel believes his legislation would plug a loophole that “allows executives who fly in corporate jets for personal travel to write off this perk for about half the price of a round-trip, first-class ticket from New York to Los Angeles while, at the same time the executive’s company is permitted to take a full tax deduction for the costs of owning and operating the airplane.” The lawmaker claims this loophole costs $287 million a year in lost tax revenues.

According to NBAA, the Senate amendment would partially reverse a pro-taxpayer decision in the Sutherland Lumber case, from the date of enactment to the end of next year.

To the extent that a “facility” is used in connection with entertainment, amusement or recreation activities, the deduction for expenses relating to that facility would be limited to the amount treated as “compensation” by the benefited employee.

NBAA said the amendment is intended to limit the deduction for expenses related to the operation of business aircraft when they are used for personal purposes. The deduction would be limited only to the extent of personal use by a CEO or someone acting in the capacity of CEO, and for public companies required to report the compensation of the top four employees to the extent of personal use by any of the four employees.

Under the Senate amendment, if an aircraft were purchased and delivered this year, used 200 hours for CEO personal travel and 600 hours for other business travel, one-fourth of the expense deduction–including bonus depreciation–would be denied to the extent that it exceeded the amount treated as compensation to the CEO. But if the aircraft were used only for 600 hours of business travel, and then remained idle, the limitation on deductions would not apply.

This makes no sense, NBAA pointed out, adding that members of Congress need to hear that message as well.   

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