Frequently Asked Questions

What are the Main Federal Income Tax Issues Associated with Aircraft Use.

There are three principal issues associated with private aircraft ownership. First is the ability to claim accelerated depreciation deductions and/or bonus depreciation. However, to do so the "qualifed business use" percentage for the aircraft determined under Internal Revenue Code ("IRC") Section 280F must be at least 50% (determined under either the flight by flight method (using either hours or miles) or the occupied seat method (using either hours or miles)). The "qualified business use" percentage must also be in excess of 25% determined by excluding certain flights for control persons. Second, you must determine the imputed income amount for personal use of the aircraft. Ordinarily, it is most advantegeous to use the SIFL method set forth in the IRS regulations to determine that amount. The SIFL method ordinarily produces an imputed income amount that is a fraction of the actual fixed and variable costs for the flight. Lastly, in the case of personal entertainment (for specified individuals as defined in Section 274) and commuting flights, you must determine the costs allocable to these flights. These costs generally may not be deducted under IRC Section 274, except (in the case of entertainment flights) to the extent of income recognized by the employee.

Standard Industry Fare Level (SIFL)

The U.S. Department of Transportation publishes SIFL rates for each six-month period (January 1 - June 30 and July 1 - December 31). These rates are used to determine the imputed tax value of non-business or personal travel aboard employer-provided aircraft under Internal Revenue Service Regulation Section 1.61-21(g). The SIFL amount is determined on a per-flight, per-person basis and generally reported to the responsible employee on IRS Form W-2 each taxable year. The value of a flight determined under the SIFL formula involves multiplying the SIFL cents-per-mile rates applicable for the 6 month period during which the flight was taken by the appropriate aircraft multiple provided in Treasury Regulation Section 1.61-21(g)(7) and miles (statute not nautical) traveled and then adding the applicable terminal charge.

What are the SIFL Rates?

SIFL rates are published twice per year. The software automatically applies the correct SIFL rates for each flight and passenger entered (using the lowest rates permitted). For reference, attached are links to the semi-annual SIFL rates for recent periods:

Historically, only a single SIFL rate has been published for each six month period. However, due to the pandemic impacts, 3 different SIFL rates have been published for certain six month periods. The IRS has indicated that taxpayers may use any of the three rates when determining the value of flights.

Special SIFL Rules

Children under the Age of Two Are not counted for SiFL purposes
If fifty-percent (50%) or more of the seating capacity on an aircraft is occupied with employees traveling on business, no SIFL income is imputed for the personal travel of employees, spouses of the employee or their children on that flight.

Public Company Reporting (SEC) Incremental Costs of Personal Flights for Named Executive Officers

Permitting an executive officer or director to use a company aircraft or company provided aircraft for personal use may require public disclosure of the incremental costs incurred as extra compensation under federal securities law. SEC Rules provide that the flights shall be valued on the basis of the aggregate incremental costs to the company. “Aggregate Incremental Cost” for personal use of non-commercial aircraft is generally thought to include any direct operating costs to the Company attributable to the personal use flight. In the case of personal use of fractionally owned Company aircraft, the direct operating costs would include: occupied hourly charge, fuel surcharge, Federal excise tax, landing, hangar and other airport fees, specialized catering fees, customs/immigration fees, ground transportation fees, passenger fees, and any flight-specific insurance costs.

Key Definitions

Tax and SEC accounting for aircraft use is complicated by the fact that each of the applicable provisions utilizes a different definition for the executive or employee traveling on the aircraft for personal use. Internal Revenue Code Section 280F (applicable for bonus and accelerated depreciation) focuses on business travel by 5% owners and related persons. Internal Revenue Code Section 274 requires a determination whether an executive or employee is a Specified Individual. Utilization of Standard Industry Fare Level (SIFL) rates to impute income to executives and employees requires a determination of whether the executive or employee is a "Control Person". Reporting of incremental costs for a trip for SEC reporting purposes requires a determination of whether the executive is a Named Executive Officer. Summarizes of these terms is set forth below:

Control Person. Control Employees are board members, shareholders, elected officers and employees compensated among the top 1% of all paid employees.
Specified Individual. Any individual who is subject to the requirements of Section 16(a) of the Securities Exchange Act of 1934 with respect to a corporation or any subsidiaries as well as any individual who would be subject to the Section 16 reporting rules if the corporation (or any of its subsidiaries) were subject to these reporting rules. This would generally include officers, directors, and 10% shareholders. In the case of a partnership, a specified individual includes any partner that holds more than a 10% equity interest in the partnership and any general partner, officer, or managing partner of the partnership.
Named Executive Officer. SEC Rules require “clear, concise and understandable” disclosure of all compensation of a company’s named executive officers (CEO, CFO, the three most highly compensated executive officers other than the CEO and CFO and and up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year). If not publicly traded, this definition is not applicable.