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NBAA Personal Use of Business Aircraft Handbook
Occasionally a business airplane is made available to employees for reasons not directly related to the business of the company. Aircraft operators must be familiar with the tax and regulatory implications of these flights.
The NBAA Personal Use of Business Aircraft Handbook summarizes the tax rules for companies to calculate the amount of the taxable fringe benefit to report to their employees, directors and independent contractors who use the company’s aircraft for personal purposes.
The handbook also addresses tax rules dealing with the calculation of a company’s nondeductible expenses under the entertainment disallowance as amended by the American Jobs Creation Act of 2004.
Additional Personal Use Resources
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. However, based on a 2010 FAA legal interpretation, some companies may be allowed to seek up to full-cost reimbursement for such trips if specific conditions are met. Review NBAA's resouce, FAA Legal Interpretation Permits Reimbursements for Certain Personal Flights.
Also, other 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.
- FAA Legal Interpretation Permits Reimbursements for Certain Personal Flights
- Federal Aviation Decision 1993-17 – Personal Use
- NBAA Aircraft Operating & Leasing Package
In most cases since the employee cannot pay the company for non-business flights, there is a taxable fringe benefit to be calculated. The value of the flight, or a portion thereof, must be included in the employee’s income.
Valuing Non-Business Flights
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. 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).
- NBAA Personal Use (SIFL) Calculator
- Personal Use Worksheet
- 26 CFR 1.61-21 Taxation of Fringe Benefits
- 26 CFR 1.132-5(m) Working Condition Fringe
Deduction Limitations for Personal Entertainment Flights
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 is disallowed as a deduction to the corporation.
For additional, visit the American Jobs Creation Act of 2004 Web Resource.
Providing a company aircraft to an executive officer or director for his/ her personal use generally requires disclosure in Securities and Exchange Commission (SEC) reports for publicly held companies. Public companies must report the aggregate incremental cost associated with personal flights, which means the cost to the company of the personal flights, not the tax value of the benefit.
- Use Of Corporate Aircraft by Executives of Public Companies: Should Tax Consequences be Disclosed? , By Alvaro Pascotto
- Personal Use of the Company Aircraft: IRS vs. FAA vs. SEC, By James E. Cooling and Joanne M. Barbera
- Use of Business Aircraft: Securities Law Considerations, By Alvaro Pascotto
- Ironies of Personal Use, By Jeff Wieand, NBAA Journal of Business Aviation Management
- Taxing Personal Use of Corporate Aircraft: A Conversation You Don't Want - But Need - To Be Ready For