Personal Use of Company Aircraft
If an executive of a publicly traded company uses a company aircraft for personal use, there are many factors to consider and several governmental agencies to satisfy. Although there is one federal government there are a multitude of federal agencies and each has its own rules and regulations. You must also deal with state agencies, each of which has different regulations.
The FAA generally prohibits an employee from paying the company for the flight except in limited circumstances. Options which allow at least some payment include: a timeshare, chartering the aircraft from a third party, dry leasing or a flight which complies with the modified Schwab opinion issued by the FAA in 2010. Each option is very fact-specific and has different tax consequences to the executive and the company.
The IRS considers a personal flight to be a benefit to the employee. The IRS wants the executive to fully pay for the perk (which can create FAA issues) or to have income imputed to the executive. The company’s tax deductions for the cost of the flight are impacted. Some options, such as a timeshare, may require the company to collect and remit the federal excise tax.
The SEC also considers a personal flight to be a benefit and requires disclosure. The company must report the aggregate incremental cost and disclose the methodology for computing the aggregate incremental cost.
State Department of Revenue
Some options may impact the state sales/use tax treatment of the aircraft. Another state could also try to impose property taxes and sales/use taxes if the aircraft now spends a significant amount of time at an executive’s vacation home in another state.
Although insurance is not a regulatory agency, it is critical that your insurance policy provide coverage for your aircraft operations. If a change to the operations is considered, consult your insurance agent.
Don’t plan (or fail to plan) for personal use of a company aircraft in a bubble of misinformation. There is value is discussing your facts and goals with aviation counsel.
Michelle M. Wade is a partner with the law firm of Jetstream Aviation Law and counsels clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com.