Page 13 - January 23

Managing Audit Risks
The last couple of years have seen dramatic changes in the business aviation industry. The pandemic and the inconvenience of airline travel have led to many first- time business aircraft buyers. Tax benefits have played a role in attracting many business owners to acquire aircraft for business travels. With Congress increasing funding of the Internal Revenue Service (IRS), this is a good time to review the audit risk of aircraft ownership and what taxpayers can do to mitigate the risk.
One of the most common questions I address with prospects and clients: “Will I be audited by the IRS because I write off an aircraft?” Contrary to popular belief, it is extremely rare to be picked for an income tax audit by the IRS, even when a business aircraft is involved in your income tax filings. Although, certain reporting scenarios are indeed “high” risk and can draw attention from IRS auditors. The primary objective of our tax planning is to avoid aircraft ownership structures that “stick out like a sore thumb” and are more likely to draw IRS attention.
For example, reporting an aircraft on Form 1040, Schedule C, Profit or Loss from Business (Sole Proprietorship) with sizable tax loss due to bonus depreciation will be an invitation for an IRS examination.
“While the general rule is 80% bonus depreciation for business assets, busi- ness aircraft may qualify for 100% bonus deprecia- tion in 2023.”
JANUARY 2023
KING AIR MAGAZINE • 11