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- DOT Releases SIFL Rates for First Half of 2013
- February 12, 2013
The U.S. Department of Transportation recently released Standard Industry Fare Level (SIFL) rates for the six-month period from Jan. 1 to June 30. This data is necessary when applying the Internal Revenue Service aircraft valuation formula to compute values of non-business transportation aboard employer-provided aircraft. Review the new SIFL rates.
- IRS Publishes Final Rule on Deduction Limitations for Personal Entertainment Flights
- August 3, 2012
On Aug. 1, the IRS published final regulations that implement provisions contained in the American Jobs Creation Act of 2004 to disallow certain deductions for what the IRS defines as “entertainment use” of business aircraft. Despite NBAA’s efforts to meet with the IRS and offer substantive comments to improve the proposed regulations, first published in 2007, the final regulations continue to be administratively burdensome and produce unfairly skewed disallowances for many taxpayers. In the final regulations, the IRS did make changes dealing with the treatment of depreciation and interest expenses. NBAA Members should be aware that these regulations are the formal position of the IRS and must be followed. Learn More.
- NBAA Releases New Resource on Reimbursements for Certain Personal Flights
- August 29, 2011
Last year, NBAA asked the Federal Aviation Administration (FAA) to reconsider a long-standing legal interpretation, known as the "Schwab Interpretation," regarding reimbursement for certain personal flights, and in December 2010, the agency issued a modified interpretation that has the effect of allowing some companies up to full-cost reimbursement for such trips. NBAA's Tax Committee has created a new resource explaining the requirements and issues to be considered before reimbursement can be made, and providing a list of frequently asked questions on this topic.
- Download NBAA Member Resource: "FAA Legal Interpretation Permits Reimbursements for Certain Personal Flights" (PDF, 940 KB)
- View NBAA's Request for FAA Interpretation (copy of original letter dated March 2010)
- View FAA Interpretation (copy of original letter dated December 2010)
Occasionally a company airplane might be made available to employees for reasons not directly related to the business of the company. Businesses must be familiar with applicable rules, such as FAA, IRS and SEC regulations when conducting these flights.
The FAA has a general prohibition on employees reimbursing companies for personal flights when the aircraft is operated under Part 91 of the Federal Aviation Regulations. In fact, FAA’s Chief Counsel issued a Federal Aviation Decision regarding this issue in 1993. This is often frustrating as many employees desire to reimburse the company directly for non-business use of the aircraft thus avoiding additional taxable income (see IRS section below) and potential disclosure to shareholders (see SEC section below).
Some exceptions to the general prohibition on reimbursement may be possible, such as a timeshare agreement between the company and the employee, or payment to the charter operator if the aircraft is on a Part 135 charter certificate.
- Federal Aviation Decision 1993-17 – Personal Use (10 KB, PDF)
- NBAA Aircraft Operating & Leasing Package (160 KB, PDF)
Guidelines and considerations for common lease and management agreements with business aircraft.
Since in most cases the employee cannot pay the company non-business use by an employee is generally considered a taxable fringe benefit. The value of the flight, or a portion thereof, must be included in the employee’s income. In basic terms, whenever an employee or guest (including family members of the employee) uses a company airplane for non-business/personal use, the flight is taxable to the employee.
Valuing Non-Business Flights
The IRS prescribes in its regulations how this personal transportation should be valued by the employer.
When calculating the value of a flight deemed to be taxable, the IRS allows operators to choose between two different methods. The first method uses the fair market value or charter value of the flight. This method looks at the cost of chartering the same or comparable aircraft for the same or comparable flight. Of the two methods, the fair market value often produces a higher value for the flight. The second and more common method determines the value of the flight using a formula that the IRS calls the Standard Industry Fare Level (SIFL). The SIFL method is based on the distance traveled, size of the aircraft, the number of people accompanying the employee, and a multiple that is higher or lower depending on whether the employee is classified as “control” or “non-control.” There are numerous other considerations, which are addressed in NBAA’s Personal Use of Employer-Provided Aircraft Handbook.
- NBAA Personal Use of Business Aircraft Handbook
Provides overview of regulations relating to personal use and detailed information on fringe benefit valuations (Fair Market Value and SIFL Method)
- NBAA Personal Use (SIFL) Calculator
Uses Standard Industry Fare Level (SIFL) rates to calculate the value of a flight deemed taxable
- Personal Use Worksheet (28 KB, PDF)
Sample form to be completed when anyone travels on company aircraft for non-business purpose
- 26 CFR 1.61-21 Taxation of Fringe Benefits (49 KB, PDF)
- 26 CFR 1.132-5(m) Working Condition Fringe (26 KB, PDF)
A provision contained in the American Jobs Creation Act of 2004 limits the ability of a company to deduct the aircraft expenses for certain non-business flights for specified individuals. Under the Act, the difference between the actual cost of personal entertainment flights taken by “specified individuals” and the amount included in income by these employees (based on SIFL or Fair Market Valuation), is disallowed as a deduction to the corporation.
- For additional information on IRS Notice 2005-45, proposed regulations under IRC Section 274, and related comments and articles, visit the American Jobs Creation Act of 2004 Web Resource.
Providing a company aircraft to an executive officer or director for his or her personal use generally requires disclosure in Securities and Exchange Commission (SEC) reports under federal securities law for publicly held companies. Public companies must report the Aggregate Incremental Cost (AIC) associated with personal flights, which means the cost to the company of the personal flights, not the tax value of the benefit (i.e., the SIFL rate). While the SEC has not specifically defined AIC in the context of business aircraft, it is widely interpreted within the business aviation community to equate to the direct operating costs related to a personal flight, and may include costs associated with deadhead repositioning flights.
- Use Of Corporate Aircraft by Executives of Public Companies: Should Tax Consequences be Disclosed? , By Alvaro Pascotto, Morrison & Foerster LLP
For SEC purposes, when reporting the aggregate incremental cost of providing a non-business flight, should public companies include the cost of disallowed depreciation?
- Personal Use of the Company Aircraft: IRS vs. FAA vs. SEC, By James E. Cooling and Joanne M. Barbera, Cooling & Herbers, P.C.
Examines IRS, FAA, and SEC regulations and reporting requirements for publicly traded companies that use corporate aircraft for personal purposes
- Use of Business Aircraft: Securities Law Considerations, By Alvaro Pascotto, Morrison & Foerster LLP
Provides information on SEC disclosure obligations and other issues for publicly traded companies that use corporate aircraft for personal purposes.
- Ironies of Personal Use, By Jeff Wieand, NBAA Journal of Business Aviation Management (420 KB, PDF)
Provides insight on the "alphabet soup" of business aviation regulations created by the policies of FAA, DOT, IRS and SEC – almost all of which are conflicting
- Taxing Personal Use of Corporate Aircraft: A Conversation You Don't Want - But Need - To Be Ready For (964 KB, PDF)