Still Disappointed

I continue to be disappointed by the abuse that Business Aviation suffers from the general media.  Op Ed writers and critics obsess over corporate jets when they write about the convoluted provisions in our nation’s tax code, insisting that companies owning aircraft receive an obscene share of special tax privileges.

For example, a column on the front page of a prominent newspaper’s business section addressed loopholes in the rules governing corporate taxes.  The first provision discussed was the tax treatment of “carried interest”, which allows hedge fund executives to treat their earnings as capital gains rather than ordinary income even though their profits are often generated through trades that are transacted in a matter of milliseconds. You and I must hold our investments for a full year to have them subject to treatment as capital gains.   We are not talking about chump change here:  The tax rate on ordinary income can reach as high as 39.6 percent, while the capital gains tax is capped at 15 percent.   Furthermore, other industries such as private equity firms, venture capital houses, the oil & gas industry, and investment partnerships related to real estate enjoy the advantages of carried interest.  In the course of a year, billions of dollars are shielded from the tax rate that applies to ordinary income.  The subject deserved to lead a column on loopholes.

The next tax treatment to be challenged dealt with penalties charged by the government for wrongdoing, such as the fines big banks paid for their transgressions associated with the recent financial crisis.  Corporations are allowed to deduct fines when paying federal taxes, but individuals can’t.   Admittedly, not all corporations take advantage of that provision—the Government Accounting Office found that in 2005, 14 of the 34 corporations with settlements of over $1 billion elected to not deduct their penalty costs.   But you and I have no option.  We cannot deduct the cost of speeding tickets.

Then the newspaper writer penned  a very short paragraph attacking the tax provision that allows a corporation owning a business aircraft for industrial aid (i.e., no commercial flights such as charter) to depreciate the asset over five years rather than seven years, as would be the case if the same aircraft were flown in some form of commercial service.  The minimum period for depreciating a commercial airliner, for example, is seven years.   The difference in depreciation schedules if closed would be less than $400 million per year—not insignificant but certainly not in the same league as the author’s other example of what he called “Corporate Loopholes to Covet”.

Yet the lone picture illustrating the article was…yes, you guessed correctly, a corporate jet!

Writers assume that any piece of metal called a corporate jet is eligible for favorable tax treatment, including depreciation.  Such is not so.  In general, a business aircraft is subject to the same IRS rules as other capital assets.

To be considered a business expense eligible for depreciation, an aircraft (just like other items of capital equipment) must be ordinary, necessary and helpful to the business.  The use of the asset must be a common and accepted practice, and the expenses claimed must be reasonable.    Owning an aircraft solely for personal use—dashing off to the Hamptons, for example—does not entitle the owner to depreciate the asset or deduct expenses.  Corporations that allow non-business (i.e., personal) use of the company aircraft must follow IRS rules imputing the value of the travel to the beneficiary’s personal tax return, and personal use hours cannot be included the corporation’s calculation of operating expenses.  There is no bright line, however, that separates when too much personal use deems the aircraft ineligible for tax treatment as a corporate asset.  But the IRS is diligent in disallowing claims that an aircraft is a business tool when its use is primarily personal.

A case can be made that our nation’s tax laws need examination, but corporate aircraft should not be the poster child for reform.


  1. Thank you for a well reasoned article. Though I’m jealous of anyone, or any business, having the assets to afford to own/operate such a vehicle, I can understand it. As you state though, it is a very negative image the public has, yet doesn’t seem to understand the largest “corporate jet” is a Boeing 747, flown on the behalf of our nation’s elected leader, and we never see, or hear, of anyone being negative about that particular plane. (Granted, it does not “belong” to him, as it is actually a military aircraft, but, it can be argued it is just that, a very large corporate jet, as it is for he, and his family’s, personal/business use.)

  2. There was an about air-parks and aviation that sort of made us all look very rich (not all of us are), in the Wall Street Journal on Friday June 6, “Living in Luxary Air Parks” by Nancy Keats She enlightens the public on how some people actually like Avation, shock (I was in it for the high fuel prices :). So I hope the press can have some insight into our world and see that it is really great.

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