The Biden administration is looking to the skies for government revenue, scrutinizing corporate jets as it tries to get big companies to pay more in taxes and to crack down on rich tax evaders.
From Taylor Swift to Fortune 500 chief executives, private air travel has for years been portrayed to exemplify lavishness and excess, putting it on the radar of Democrats who want to rid the tax code of incentives that promote its use.
Companies have long benefited from laws that allow them to write off the cost of jets more quickly than commercial airlines can, and to pay less in fuel taxes. Included in the $5 trillion of tax increases proposed by the White House were plans to target corporate aviation and ramp up scrutiny of executives who use company planes for private trips.
President Biden raised the taxation of corporate jets at his State of the Union address this month and at a campaign event in Philadelphia last week as he laid out his ideas to make big companies “pay their fair share.”
At a Senate hearing on Thursday, Treasury Secretary Janet L. Yellen planned to praise the Internal Revenue Service for embarking on a “new initiative to end abuse of corporate jet write-offs,” according to her prepared remarks.
The ideas have drawn swift backlash from the corporate aviation industry, which argues that the proposals unfairly undercut American companies that rely on private planes to allow their executives to more easily visit factories and remote offices.
“We haven’t seen any real justification on why an important and essential American industry is being targeted for tax increases,” said Ed Bolen, president and chief executive of the National Business Aviation Association. “Proposals have been made, impressions may have been left and we would like to understand the facts behind it.”
Mr. Biden’s budget, which is unlikely to be approved by Congress, would hit corporate and private jet users in two ways.
It would raise the tax on jet fuel to $1.06 per gallon from 21.8 cents per gallon over five years. The money goes to the Airport and Airway Trust Fund, which helps finance federal investments in the airport and airway system. The Biden administration contends that the current rate is too low because private jets represent 7 percent of flights handled by the Federal Aviation Administration but contribute just 0.6 percent of the taxes in the fund.
The other proposal would target a lucrative tax break that allows companies to deduct the cost of their planes quickly. Currently, a business can write off a jet’s expense over five years, instead of the seven-year period that applies to commercial airplanes. The budget proposed the same seven-year tax treatment for corporate and commercial jets, which is known as “bonus depreciation.”
The White House estimates that the proposals would raise $4 billion over a decade.
“This is about leveling the playing field for the middle class by making big corporations and the wealthy finally pay their fair share — whether it’s cracking down on wealthy tax cheats or closing loopholes for corporate jet purchases — so we can cut the deficit and invest in the American people,” Michael Kikukawa, a White House spokesman, said.
The White House proposals came just weeks after the Internal Revenue Service announced that it would begin cracking down on corporate jet owners that abused the tax code. It wants to stop companies from claiming millions of dollars in deductions on airplanes that executives sometimes used for personal travel.
Scrutiny of corporate jet use will involve new data analytics tools, which the I.R.S. has been developing with $80 billion in funds granted through the Inflation Reduction Act of 2022. The tax collector plans to begin dozens of new audits that will focus on large companies, partnerships and wealthy taxpayers.
The tax code allows companies to deduct the cost of maintaining a corporate jet if it is used for business purposes. But many allow executives, shareholders and partners to use company planes for personal trips while continuing to claim the full value of those deductions.
The I.R.S. audits will also include the planes’ wealthy passengers, who the agency says should report those trips as income. It estimates that there are tens of thousands of corporate jets in the United States and a substantial amount of tax revenue is falling through the cracks.
In a speech at American University on Monday evening, Daniel Werfel, the I.R.S. commissioner, said that the focus on business aviation was made possible by new funding the agency has received to upgrade its technology, which has allowed it to more rigorously analyze flight data.
“A more digital I.R.S. unlocks our ability to audit the inappropriate write-offs for personal use of corporate assets, such as corporate jets,” he said.
Ryan DeMoor, head of aviation tax at MySky, said he doesn’t expect the I.R.S. audits to bring in as much missing tax revenue as the agency anticipates. He said many executives are required to fly on corporate airplanes, even for personal travel, and argued that finance departments tend to be overly cautious about how they report aviation taxes because of the risk and cost of getting them wrong.
“They’re falling into the fat-cat executive trope out there, which is just not the case,” said Mr. DeMoor, whose business helps companies manage their flight expenses. “Why would a Fortune 500 company put themselves at risk by trying to save a tiny bit of tax money on their flight department?”