Note: Recently, the Wall Street Journal ran an article titled "Corporate Jet Set: Leisure vs. Business", which analyzed the use of business jets by Named Executive Officers (NEO's) of major corporations. In addition, they created the WSJ Jet Tracker, which allows the public to research FAA records for flight history of corporate aircraft. This is an excellent example of the need for proper compliance and recordkeeping, and AircraftLogs provides the best solution for accurate treatment of aircraft accounting and corporate disclosures. Please read on for more information about this important topic.
For Corporate Flight Departments, the term "compliance" typically refers to FAA compliance, or TSA and Customs issues. However, there has been enough regulatory change at the IRS and SEC levels that "corporate compliance" is an important consideration as well. It affects both corporate aircraft and fractional owners.
Business aircraft are strategic assets, and often very costly. But within a larger company, especially large, publicly-traded stock companies, company aircraft may be "immaterial", making up only a tiny fraction of the finances of a large company. As a result, they may not have been an area of focus in the past for company tax accountants or external auditors. That is now changing.
In recent years, Congress has increased its focus on corporate jets, resulting in greater IRS and SEC scrutiny of tax deductions and executive compensation. As a result, senior management may also be evaluating their use of business aircraft. To the extent IRS or SEC compliance becomes a difficult effort, we'd recommend you take action to make it as easy as possible. If company leadership is weighing any concerns about operating a flight department, it is important that other departments in your company don't experience any burdens associated with the company aircraft. See Corporate Compliance & GRC.
If your company owns fractional interests in business jets or has time share arrangements, the compliance and disclosure requirements discussed below still apply. The tax issues associated with fractional airplane ownership are the same as those associated with an internal flight department. Corporate financial statement disclosures also apply regarding fractional aircraft use by senior executives. See Aviation Tax Simplified for a primer on the IRS requirements for corporate aircraft, as these topics apply to fractional aircraft ownership.
If your flight department is part of a larger company, it most likely has internal tax staff. Performing the tax calculations required (see Aviation Tax Simplified) can put them through a steep learning curve, as well as create a great deal of data analysis and review. While they may have the responsibility of handling the tax compliance associated with your flight department, they may not be familiar with aviation or aviation tax issues.
If your flight department is part of a company that has publicly-traded stock registered with the SEC, it most likely falls under 17 CFR 229.402, which deals with executive compensation, named executive officers (or "NEO's") and related financial disclosures. The financial reporting staff within your company will manage this area, and aircraft use by company executives may impact their reports.
In general, certain use of company aircraft by executives must be disclosed in the proxy statement as part of the shareholder disclosures addressing "all other compensation" of named executive officers (NEO's) and directors of the company. In recent years, the Securities & Exchange Commission (SEC) has lowered the disclosure thresholds to increase the visibility of personal aircraft use by executives, within the Compensation Discussion & Analysis (CD&A) section of the proxy.
Fortunately, much of the data used in these calculations is routine flight information. But in most flight departments, it's scattered in various locations between flight logs, trip requests and spreadsheets. Tax staffs often need to re-key or re-create the flight details in several complex spreadsheets to perform the necessary calculations. Typically, they will have questions about individual flights, and may ask you for more data.
Corporate aviation compliance is both difficult and required; but your flight department holds the data. Providing straight-forward tax reports from a system designed to support these calculations simplifies the effort for corporate compliance, and gives the flight department a good impression.
Understand your data and seek the advice of your internal tax staff. Learn what they do today with the data they receive. AircraftLogs has reports designed specifically for your tax staff. Understand their process, and you will find an opportunity to "score some points" for the Flight Department while improving the compliance process.
Yes they did. Although the IRS released Notice 2005-45 in 2005, AircraftLogs is still the only software provider with an integrated solution. In all likelihood, your accounting personnel are working with raw flight data or extracts from your scheduling system, and attempting to link it with expense information in order to prepare the necessary reporting. They may also be unaware of the specific rules regarding corporate aircraft.
Also, it took time for these new requirements to reach IRS field auditors, and the IRS tends to open audits as companies near their 3 year statute of limitations on a tax return. Aircraft audits focusing on these areas are now beginning to increase. Further scrutiny can be expected for many operators.
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