With the rebound in corporate jet travel, C-suite executives have a sweet deal unbeknownst to many company investors.
The use of private corporate jets is flush. In 2008, the use of corporate craft took a nose dive when the CEOs of GM, Chrysler, and Ford flew to Washington to plead for bailout funds. The companies earned the scorn of legislators and the media as they asked for cash with their private jets parked at Dulles. Those days are gone as regulations and employment contracts make it easy for executives to travel privately, and in style, even when not on a business trip. So who pays? In many cases, it is company investors.
According to current tax regulation, the use of a corporate jet for pleasure, or family vacations is considered taxable income. In order to avoid charges for tax fraud, the executive must detail trips taken, but needs only to value the cost of the trip as commensurate with a first-class seat on a commercial airliner.
In 2017, controversy swirled around former Secretary of Health and Human Resources, Tom Price. Media reports revealed his use of private jets at government expense for personal use, and the use of military jets to fly with his wife on trips to Europe and Asia. Although Mr. Price offered to pay $52,000 toward the cost of his seat on the domestic flights, the overall cost of the jet use was over $400,000. The storm around the waste of taxpayer money cost Mr. Price his job. Yet today, those same costs are passed along to investors footing the bill for executive use of corporate jets. The executive pays the price of a seat, while the company picks up the tab for the rest of the non-deductible costs.
Those costs include:
- Aircraft maintenance
- Depreciation and finance charges
- Insurance
- Pilot and attendant salaries
When the corporate jet is used for business trips, these costs are deductible. The deduction is lost when the executive uses the jet for business entertainment or personal corporate jet use. Interestingly, those non-deductible costs are not required to be publically reported by the company—so investors are usually none the wiser.
Is it tax fraud? The use of the corporate jet as an executive perk is not a criminal tax matter unless the executive fails to report the income. Corporate boards charged with reporting to investors might consider the real cost of the company jet to investors. In the meantime, C-suite execs can privately fly the skies in style for only the cost of a first-class ticket.
Speak with our tax lawyers in Chicago or Cleveland, Illinois
Whether concerned about failure to file, an employment tax issue, or other tax controversy, contact Robert J. Fedor, Esq., LLC for a confidential consultation. We deliver skilled legal representation and smart solutions to resolve your tax issues. Call 800.579.0997 today.
