Memo to File
Client: Sanchez Corporation
Subject: Taxation of the Corporate Jet
For: Carlos Sanchez
Researched by: Alessandra Baixeras, Eric Higgins, Cyril Matz
Carlos Sanchez, president of the Sanchez Corporation, is planning to acquire a corporate jet. This jet will increase the efficiency and security of the company’s executives. The executives will use the corporate jet for both business trips and personal vacations.
1. Is the value of the personal use of the corporate jet taxable to the company executives as compensation?
2. How should the company determine the amount that is taxed to its employees when the corporate jet is used for personal travel?
3. What substantiation is required for the company to support its treatment of the corporate jet?
1. Personal flights taken by an employee on an employer-provided aircraft are included in the employee’s compensation according to Regulation Section 1.61-21(g)(4)(i).
2. When the corporate jet is used for personal travel, the amount taxed to its employees should be determined by the Aircraft Valuation formula as stated under Regulation Section 1.61-21(g)(5).
3. The taxpayer must substantiate by adequate records or by sufficient evidence corroborating the taxpayer's own statement as under Section 274(d).
Discussion of Reasoning and Authorities
1. Gross income does not include the value of a working condition fringe. Section 132 provides that the term “working condition fringe” means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, the payment would be allowable as a deduction under Section 162 or 167. A personal flight, however, is not excludable from gross income as a working condition fringe under section 132(d), so therefore, it must be included as compensation to the employee.
2. Regulation Section 1.61-21(g)(5) provides that the Aircraft...