Kevin, I did not delete the entire text of the article below as I wanted anyone interested to be able to refer to it in this discussion. One point, and there are several, that is not mentioned in the article is the fact that a shareholders deductable loss pass throughs are limited by his/her capital account of the corporation. Thus, any excess loss generated by the personal use (which I feel certain will be successfully argued by the IRS) is limited to contributed capital or sub S income passed through to the shareholder. So to take this further, it would be very easy for someone to generate taxable income on a 1040 with the use of a corporate airplane and have a zero capital account making the pass through income being treated as suspended loss. I won't even get into alternative minimun tax or liquidation of a sub S with suspended losses. That article leaves out some very, very important ponts.
As I replied to Dan off the list, I'm not forming anything for mine. Dana Overall 1999 & 2000 National KR Gathering host Richmond, KY i39 RV-7 slider, Imron black, "Black Magic" Finish kit 13B Rotary. Hangar flying my Dynon. http://rvflying.tripod.com http://rvflying.tripod.com/blackrudder.jpg do not archive >From: Kevin Jarvis <fuzzyj...@comcast.net> >Reply-To: k.jar...@mchsi.com, KRnet <kr...@mylist.net> >To: kr...@mylist.net >Subject: KR> Taxes - I am not your accountant or attorney >Date: Sat, 11 Dec 2004 11:26:50 -0500 > >KR netters. > >It seems that forming an LLC or S corporation can have substantial tax >benefits, even if the corporation aircraft is a KR and even if the >benefits are abusive. Of course any such decisions should only be >determined after counsel with professional help. And yes, we should all >get out of the shop and vote, always. > >Dana, you said ....... > >"Example, you use the corporate airplane for personal use. It doing so >you are receiving compensation via usage and must receive a 1099 for >income in excess of $600 yearly. So, if you form a corporation to avoid >sales tax, whether it is Delaware, NC or Timbucktoo the IRS is still >going to see to it you are income taxed at the fair market value of the >asset usage. So lets think about this; you use the airplane for 200 >hours per year. The average retail rate is $65. You just "earned" in >excess of 12000.00 in taxable income on your personal tax return. Now, >let think about fuel. If you buy it, it must go into the corporated as >donated capital, if the corporation buys it and you use it for personnal >usage............income to you. Distributable income, just where did >this corporation get it's money to buy all this "stuff" for the >shareholder to use.............follow me here......you donate the fuel >money, insurance money, property tax money then have to report it as >income on your personal tax return just to save some up front sales tax >money????? " > > >This article, (please read the whole thing, it's not long) > >http://www.ainonline.com/issues/02_04/02_04_IRSusep6.html > >says in part, > >"Owners and employees who use company airplanes for pleasure instead of >business are required to report the value of their trips as taxable >income," the Post said, "though under a long-standing formula that does >not necessarily reflect the actual cost." That formula is the >Transportation Department's own standard industry fare level (SIFL) and >is determined by aircraft weight and distance flown. > >According to the Post, the IRS ruling could result in deductions that >are substantially larger than the reported income. In cases of S >corporations, which pass profits and losses through to the owners, "That >means the owner of such a business could report the income under [the >SIFL] formula while receiving an even bigger deduction as his share of >the company's gains and losses," it said. > >As one aviation tax advisor explained to AIN, "I'm the guy using the >airplane and I own the company, and so all of the deductions flow >through to me. They reduce the amount of taxes that I pay." He admitted >that it could lead to abuses and shows that the IRS is willing to >countenance that abuse. > >Keith Swirsky of Galland, Kharasch, Greenberg, Fellman & Swirsky, a >specialist in aircraft taxation, told AIN that in the case of an >S-corporation shareholder using the aircraft for a very high percent of >personal use, those expenses are being deducted by the company although >they relate to personal use. "So the net is a huge tax benefit," he >said, equating it to tax shelters in the 1980s. > >In the federal court case that started all of this, there was a high >percentage of personal use of a corporate aircraft, which was computed >as personal income using SIFL. But the IRS thought the deduction for >operating the aircraft should be limited to the SIFL calculation. The >federal court disagreed, and ruled that all of the aircraft operating >costs could be deducted. > >The Post claimed that the effect of the memo "could be a substantial >windfall" for private jet owners, wealthy families and family >businesses. And, while the recent IRS interpretation was specific to an >S corporation, it could also reflect the agency's views for other >"pass-through entities," such as partnerships and limited-liability >companies, he said. > >According to the article, "it is too early to estimate how much the new >interpretation might cost the government, but several attorneys and >accountants who advise wealthy clients said they expect personal use of >corporate airplanes to rise sharply." > > > > > > >_______________________________________ >Search the KRnet Archives at http://www.maddyhome.com/krsrch/index.jsp >to UNsubscribe from KRnet, send a message to krnet-le...@mylist.net > >please see other KRnet info at http://www.krnet.org/info.html
