The Internal Revenue Service (IRS) recently finalized rules on the use of business aircraft for entertainment. Proposed regulations issued in 2007 tightened the tax deductions for the personal use of corporate aircraft for entertainment travel by executives.
Despite criticism from commentators and numerous requests for modifications, the IRS made few changes to the proposed rules. Addressing various public comments on those rules in the preamble, the IRS explained its denial of numerous requests for revisions. The final regulations continue to disallow deductions under Internal Revenue Code Section 274(a) for fixed costs not directly related to an individual flight, fail to provide a safe harbor alternative to determining actual expenses that would be based on charter rates, and continue to permit businesses to compute depreciation expenses on a straight-line basis for all of the taxpayer’s aircraft and all taxable years in calculating expenses subject to disallowance. With respect to depreciation, the final rules provide a transition rule for aircraft placed in service before the election and clarify that for any taxable year “the sum of the allowable depreciation and the depreciation disallowed will not exceed 100 percent of basis,” regardless of the year in which the straight-line election is made. Various proposed rules allocating costs to flights are generally retained in the final rules despite requests for revisions, and a number of clarifications of the allocation rules are offered. (T.D. 9597)