If you’ve ever searched the Internet looking for information on a particular tax topic, you may have been directed to one of the IRS’s many publications. These are generally written for a lay reader and, as noted, “reflect the interpretation by the Internal Revenue Service (IRS) of: Tax laws enacted by Congress, Treasury regulations, and Court decisions.”
There is, however, a disclaimer. “However, the information given does not cover every situation and is not intended to replace the law or change its meaning.” The best disclaimer is:
This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS.
IRS publications are updated regularly. So it’s always important to make sure you are reading the most recent version.
A deeper search of the Internet would lead the intrepid researcher to a page entitled “Practice Units.” This is the IRS’s guidance to its own agents providing them with, “explanations of general tax concepts as well as information about a specific type of transaction.” Like the Publications, Practice Units are frequently updated for changes in law. They are also updated regularly based on experiences the IRS has in the field. In other words, as they discover new ways taxpayers are optimizing their tax planning.
New Practice Units are issued regularly as the IRS attempts to increase examiner’s knowledge. One of the most recent ones deals with “Personal Use of Aircraft.” Travel by private plane and business aircraft ownership has expanded dramatically in the COVID era. The IRS is trying to keep up. Treasury Regulations specify four methods for allocating between deductible business expenses and personal use of aircraft, but these rules are complex and require detailed record keeping.
IRS examiners are instructed to ask for the following:
- Complete flight records including:
- Date, departure and landing locations, trip hours, and miles flown
- IRC Section 274(d) substantiation for all flight legs
- Passenger manifest for every flight leg
- The business purpose, if any, of each passenger on each flight leg
- List of “specified individuals” of the company as defined in Treas. Reg. 1.274-9
- List of amounts that are treated as compensation to employees and “specified individuals” who are not employees, for example a CEO or business owner
- All direct and indirect aircraft expenses deducted on the tax return for the year under exam
The Practice Unit goes on to show how to apply the four allocation formulas and includes specific examples of the concept. Before you take flight, contact your Friedman LLP advisor to help you traverse otherwise complex rules with ease.
