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Biden targets private jets in search of tax revenue

The Biden administration is looking to the skies for government revenue, eyeing corporate jets as it tries to make it big. businesses will pay more taxes and to crack down on wealthy tax evaders.

From Taylor Swift to Fortune 500 CEOs, private air travel has been held up for years as an example of profligacy and excess, putting it on the radar of Democrats who want to rid the tax code of incentives that favor its use.

Companies have long benefited from laws that allow them to amortize the cost of jets more quickly than commercial airlines and pay less in taxes on fuel. Among the $5 trillion in tax increases proposed by the White House were plans to target business aviation and increase scrutiny of executives who use corporate jets for private travel.

President Biden increased taxes on business jets during his State of the Union address this month and at a campaign event in Philadelphia last week as he laid out his ideas for forcing big companies to “pay their fair share”.

At a Senate hearing Thursday, Treasury Secretary Janet L. Yellen planned to praise the Internal Revenue Service for embarking on a “new initiative to end abuses in aircraft write-offs.” 'business,' according to his prepared remarks.

The ideas have drawn swift backlash from the business aviation industry, which says the proposals unfairly harm U.S. companies that rely on private planes to make it easier for their executives to visit factories and facilities. remote offices.

“We have found no real justification for why an important and essential American industry is being targeted with tax increases,” said Ed Bolen, president and CEO of the National Business Aviation Association. “Proposals have been made, impressions may have been left and we would like to understand the facts behind them.”

Mr. Biden's budget, which is unlikely to be approved by Congress, would affect business and private jet users in two ways.

It would increase the tax on jet fuel from 21.8 cents per gallon to $1.06 per gallon over five years. The money goes to Airports and Airways Trust Fund, which helps finance federal investments in the airport and air system. The Biden administration says the current rate is too low because private jets make up 7% of flights managed by the Federal Aviation Administration but contribute only 0.6% of the fund's taxes.

The other proposal would seek a lucrative tax break allowing companies to quickly deduct the cost of their planes. Currently, a company can amortize jet aircraft expenses over five years, instead of the seven-year period that applies to commercial aircraft. The budget proposes the same tax treatment over seven years for business and commercial aircraft, known as “bonus depreciation.”

The White House estimates that these proposals would raise $4 billion over a decade.

“It's about leveling the playing field for the middle class by making big corporations and the wealthy finally pay their fair share – whether that's cracking down on wealthy tax cheats or closing loopholes for purchasing business jets – so we can reduce the deficit and invest in the American people,” said White House spokesman Michael Kikukawa.

The White House proposals came just weeks after the Internal Revenue Service announced it would begin cracking down on business jet owners who abuse the tax code. He wants to stop companies from claiming millions of dollars in deductions on planes that executives sometimes used for personal travel.

Monitoring corporate jet use will involve new data analysis tools, which the IRS developed with $80 billion in funds awarded under the Inflation Reduction Act of 2022 The tax collector plans to launch dozens of new audits that will focus on large companies and partnerships. and wealthy taxpayers.

The tax code allows companies to deduct the cost of maintaining a business jet if it is used for business purposes. But many allow executives, shareholders and associates to use company planes for personal travel while still claiming the full value of those deductions.

The IRS audits will also include wealthy airplane passengers, who the agency says should report those trips as income. He estimates that there are tens of thousands of corporate jets in the United States and that a significant portion of tax revenue falls through the cracks.

In a speech Monday evening at American University, Daniel Werfel, the IRS commissioner, said the focus on business aviation was made possible by new funding the agency received to upgrade its technology, which allowed it to more rigorously analyze flight data.

“A more digital IRS unlocks our ability to audit inappropriate personal-use write-offs of company assets, such as corporate jets,” he said.

Ryan DeMoor, MySky's air tax manager, said he doesn't expect IRS audits to generate as much missing tax revenue as the agency expects. He said many executives are required to take business jets, even for personal travel, and argued that finance departments tend to be too conservative in how they report airline taxes because of the risk and the cost of being wrong.

“They fall into the cliché of big executives, which is just not the case,” said Mr. DeMoor, whose firm helps companies manage their flight expenses. “Why would a Fortune 500 company put itself at risk by trying to save just a little bit of tax money on its flight service? »

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