The IRS recently announced plans to conduct “dozens of new audits” on corporate jet usage as part of their efforts to increase scrutiny on large corporations, complex partnerships, and high earners. With over 10,000 corporate jets operating in the U.S., the agency is concerned that some companies may be overstating deductions by using aircraft for both business and personal travel. Additionally, there are concerns that individuals are not properly reporting personal trips taken via corporate jets as income.
The audits will initially target corporations and complex partnerships, with plans for three to four dozen examinations of corporate jet usage. The goal is to ensure that there is a clear breakdown between business and personal travel when it comes to deductions related to the use of corporate aircraft. IRS Commissioner Danny Werfel emphasized the importance of accurate record-keeping in differentiating between legitimate business expenses and personal use of corporate jets.
While the initial focus will be on corporations and complex partnerships, future audits could potentially expand to include high-income individuals. The aim is to prevent high-income groups from avoiding their tax responsibilities and ensure that all income, including any personal trips taken via corporate jets, is properly reported.
Broader Effort to Collect Unpaid Taxes
These new audits are part of a broader effort by the IRS to address the issue of unpaid taxes by targeting large corporations, complex partnerships, and high earners. Werfel highlighted the historically low audit rates for these groups, with only 0.7% of taxpayers earning $1 million or more being audited in 2019 compared to 7.2% in 2011.
Focus on High-Risk Non-Compliance
The IRS is particularly focused on increasing scrutiny on high-income returns where there is a high risk of non-compliance and even purposeful tax evasion. The tax gap, which represents the difference between taxes owed and paid, was estimated to be $688 billion for tax year 2021. By targeting high-income groups and complex entities, the IRS aims to close this tax gap and ensure that all taxpayers are meeting their tax obligations.
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