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Borrowing the Company Jet | Business Jet Traveler

Borrowing the Company Jet | Business Jet Traveler

Thursday, November 21, 2013 – 3:30pm

Calculating the cost of personal use is as complicated as it is important.

When an employee takes a personal flight on his company’s aircraft, how do you calculate the trip’s cost or value? The answer depends on who’s asking the question and why.

The Federal Aviation Administration generally prohibits passengers from paying for flights that aren’t operated under a commercial certificate. “Payment” means forking over any kind of direct or indirect compensation. The FAA says, however, that if the flight is “within the scope of and incidental to” a company’s business, it can charge the employee the cost of “owning, operating and maintaining the airplane.”

That’s a broad standard for figuring costs. In interpretations, the FAA has said it’s acceptable to use the cost of aircraft usage as established by the company’s accounting department in the normal course of business and that the cost could represent a pro-rata portion of “all fixed and variable overhead expenses associated with the aircraft.” More recently, as part of a convoluted analysis that sowed more confusion than elucidation, the agency said that the cost could even include depreciation of the airplane.

On the other hand, if an employee’s flight is for personal purposes (and is thus not “within the scope of and incidental to” company business), such charges are prohibited. Instead, FAA regulations permit the employee in some cases to “time share” an aircraft for an amount equal to twice the actual fuel costs, plus certain stated expenses. Barring astronomical fuel prices, this amount won’t cover all of the company’s expenses for the flight—certainly not a pro-rata portion of the cost of owning, operating and maintaining the aircraft.

Compare this with the Internal Revenue Service’s approach. The IRS is interested in the cost or value of a flight for two main reasons. First, if an employee travels on company aircraft for personal purposes, the agency treats the flight as a perquisite and the employee as a recipient of taxable income. The IRS gives the company a choice in calculating the amount of that income. To the extent that the employee doesn’t pay for the flight, the company must impute his income using either the ride’s fair market value or a calculation method called SIFL. The former is basically the cost to charter the aircraft, while the latter reflects the cost of first-class airfare. Needless to say, the two numbers will be very different.

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