The IRS has announced a new audit campaign targeted at the use of private aircraft, a/k/a “corporate jets”.  This has been an intensifying area of focus by the IRS over the last few years as a result of recently-increased tax benefits for private aircraft.  Clients who use airplanes for business and have taken advantage of these tax benefits should be prepared for additional scrutiny of their tax returns.

Corporate jets had often been the focus of audits and reviews by the IRS in earlier years, due to some longstanding tax rules that applied to them—including complicated rules for determining which portion of the use of a corporate jet for an executive was personal versus business (with the personal portion being treated and taxed as wages), rules limiting depreciation for luxury travel (which includes private jets and some automobiles) with excess personal use, and specialized excise taxes. The Tax Cuts and Jobs Act created a new and potentially very significant tax benefit associated with corporate jets: the potential to essentially deduct the entire upfront cost of the plane, for planes put into service between 2018 and 2022—if certain business use tests were met.

Perhaps with a skeptical eye on these new-and-improved tax benefits, the IRS announced the audit campaign of private aircraft, with a focus on those owned by business corporations and “complex partnerships.”  Items for examination include all of the issues flagged above (such as the deductibility of flight costs as business expenses and the imputation of income to passengers for flights that are for personal use) but the apparent focus is on the accelerated depreciation. 

Since the audit campaign announcement, the training materials for the auditors had been obtained (through a Freedom of Information Act request) and subjects of the audit have been revealing their experiences. It is apparent that the IRS has significantly improved their sophistication on corporate jet audits, and the training materials establish that the IRS can and will request detailed documentation to substantiate the business use position.  These extend beyond flight logs and documentation related to the plane to the itineraries of the passengers when on the ground, receipts for their activities between flights, etc.  While most organizations have compliance and document retention policies in place, recent IRS actions underscore the importance of having these and of (vis a vis tax reporting) erring on the side of recordkeeping.  Those organizations which have taken the accelerated depreciation on the purchase price of aircraft are probably the first set of taxpayers who will be vetted/considered for audit.

The initiative and issues here are essentially of equal relevance to high-net-worth individuals who take business use positions in respect of their private aircraft. Again, the likely focus will be on those who have taken the accelerated depreciation (which also applies to planes placed in service in 2023 through 2026 at lower rates), but all parties with corporate jets should take into account the possibility of extensive and detailed audits, and going forward should ensure that their recordkeeping and document retention policies are appropriately expansive to catch all the information that the IRS is currently seeking. While the amounts at issue may be smaller, users of private air services like NetJets may also want to engage in similar recordkeeping, to substantiate the business purposes of their travel.

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Photo of Richard M. Corn Richard M. Corn

Richard M. Corn is a partner in the Tax Department. He focuses his practice on corporate tax structuring and planning for a wide variety of transactions, including:

  • mergers and acquisitions
  • cross-border transactions
  • joint ventures
  • structured financings
  • debt and equity issuances
  • restructurings
  • bankruptcy-related transactions

Richard M. Corn is a partner in the Tax Department. He focuses his practice on corporate tax structuring and planning for a wide variety of transactions, including:

  • mergers and acquisitions
  • cross-border transactions
  • joint ventures
  • structured financings
  • debt and equity issuances
  • restructurings
  • bankruptcy-related transactions

Richard advises both U.S. and international clients, including multinational financial institutions, private equity funds, hedge funds, asset managers and joint ventures. He has particular experience in the financial services and sports sectors. He also works with individuals and tax-exempt and not-for-profit organizations on their tax matters.

Richard began his career as a clerk for the U.S. Court of Appeals for the Fourth Circuit Judge J. Michael Luttig and then went on to clerk at the U.S. Supreme Court for Associate Justice Clarence Thomas. Prior to joining Proskauer, he most recently practiced at Sullivan & Cromwell as well as Wachtell, Lipton, Rosen and Katz.

Photo of Robert A. Friedman Robert A. Friedman

Robert Friedman is a partner in the Tax Department whose practice focuses on representing clients in all facets of corporate and partnership related tax matters. In particular, Robert provides tax advice on public and private mergers, acquisitions, joint ventures, divestitures, private equity fund…

Robert Friedman is a partner in the Tax Department whose practice focuses on representing clients in all facets of corporate and partnership related tax matters. In particular, Robert provides tax advice on public and private mergers, acquisitions, joint ventures, divestitures, private equity fund formation, financial products and electric and gas utility tax issues.

Photo of Mitchell Gaswirth Mitchell Gaswirth

Mitchell M. Gaswirth is a partner in the Tax Department. His practice focuses primarily on income, gift and estate tax and related business planning. Mitchell counsels individuals, entrepreneurs and business entities in connection with the myriad income and other tax issues arising in…

Mitchell M. Gaswirth is a partner in the Tax Department. His practice focuses primarily on income, gift and estate tax and related business planning. Mitchell counsels individuals, entrepreneurs and business entities in connection with the myriad income and other tax issues arising in sophisticated business transactions.

Mitchell’s practice also encompasses a wide array of merger and acquisition, business formation and financing, debt restructuring, and real property acquisition, disposition and exchange transactions. His knowledge encompasses the complex and often arcane application of California’s property tax regime (“Proposition 13”) in a variety of business transactions directly or indirectly involving California real property.

In addition, he provides income, gift and estate tax and related business planning advice to individuals, families, and their business enterprises to help them achieve wealth preservation and tax minimization objectives. This planning includes tax minimization strategies involving grantor trusts, family limited partnerships, charitable and family “split interest” and other irrevocable trusts, and other sophisticated wealth transfer and business succession vehicles. Mitchell’s wealth transfer tax planning practice focuses particularly on counseling executives, professionals, investors, and others concerning the preservation, administration and disposition of their capital. He also counsels individuals and businesses in connection with planning to minimize California income tax burdens.

Mitchell also represents corporate and individual fiduciaries, and estate and trust beneficiaries, in a wide array of sophisticated personal planning and fiduciary administration matters, including representing U.S. Trust, JPMorgan Chase Bank and Wells Fargo Bank, in their administrations of complex trust arrangements for high net worth families. His fiduciary practice also encompasses substantial “Family Office” representation for multi-member families seeking to achieve complex and sophisticated income and wealth transfer tax objectives.

Mitchell’s tax practice also involves the administrative and judicial resolution of tax disputes with federal and state tax authorities. He represents taxpayers in income, estate and gift, sales and use, property, and employment tax disputes with the Internal Revenue Service, California Franchise Tax Board, and other tax authorities. Notably, Mitchell served as Lead Tax Counsel to the late Paul Newman, both at trial and in the California Court of Appeals, in the actor’s successful refund suit against the California Franchise Tax Board. The Newman case established the impropriety of the Franchise Tax Board’s formula for apportioning to California a non-resident entertainer’s income derived from both California and non-California sources.

Prior to joining Proskauer, Mitchell was a partner of the Los Angeles law firm Mitchell, Silberberg & Knupp.

Photo of Martin T. Hamilton Martin T. Hamilton

Martin T. Hamilton is a partner in the Tax Department. He primarily handles U.S. corporate, partnership and international tax matters.

Martin’s practice focuses on mergers and acquisitions, cross-border investments and structured financing arrangements, as well as tax-efficient corporate financing techniques and the tax…

Martin T. Hamilton is a partner in the Tax Department. He primarily handles U.S. corporate, partnership and international tax matters.

Martin’s practice focuses on mergers and acquisitions, cross-border investments and structured financing arrangements, as well as tax-efficient corporate financing techniques and the tax treatment of complex financial products. He has experience with public and private cross-border mergers, acquisitions, offerings and financings, and has advised both U.S. and international clients, including private equity funds, commercial and investment banks, insurance companies and multinational industrials, on the U.S. tax impact of these global transactions.

In addition, Martin has worked on transactions in the financial services, technology, insurance, real estate, health care, energy, natural resources and industrial sectors, and these transactions have involved inbound and outbound investment throughout Europe and North America, as well as major markets in East and South Asia, South America and Australia.

Photo of Stephanie Heilborn Stephanie Heilborn

Stephanie Heilborn is a partner in the Private Client Services Department and leads the International Private Client Services group.

Stephanie counsels some of the world’s wealthiest families and largest financial institutions in the implementation of complex tax-planning strategies, international estate planning and trust…

Stephanie Heilborn is a partner in the Private Client Services Department and leads the International Private Client Services group.

Stephanie counsels some of the world’s wealthiest families and largest financial institutions in the implementation of complex tax-planning strategies, international estate planning and trust administration as well as fiduciary litigation. She assists in the formation and provision of corporate tax advice to private foundations and other tax-exempt organizations. She also has experience in forming and advising domestic and international family offices regarding estate and tax planning.

Stephanie frequently lectures and writes on estate-planning topics and has been quoted by The New York Times and Forbes. She has served as an Adjunct Associate Professor of Law at Brooklyn Law School.

Photo of Malcolm Hochenberg Malcolm Hochenberg

Malcolm S. Hochenberg is a partner in the Tax Department. Malcolm’s practice involves helping clients achieve all tax and other commercial objectives in an array of industries.

Malcolm often works with companies in the context of an M&A transaction and then becomes a…

Malcolm S. Hochenberg is a partner in the Tax Department. Malcolm’s practice involves helping clients achieve all tax and other commercial objectives in an array of industries.

Malcolm often works with companies in the context of an M&A transaction and then becomes a day-to-day advisor to the organization and/or its owners. Malcolm also has extensive experience restructuring companies in distressed and non-distressed situations. Within the Firm and among clients, he is known for his proactive, solution-oriented approach.

Malcolm’s experience includes work in the following disciplines:

M&A

Private equity funds in dozens of acquisitions, dispositions and related financings

Acquisitions and dispositions by and of public companies

Mergers and consolidations of registered funds

Sales of professional sports franchises and other gaming businesses

Advisory and Restructuring

Reorganizing global structures for multinational firms,

Work both near and in bankruptcy, including Chapter 11 restructurings and representing ad hoc groups of private credit lenders in Chapter 11 and 363 sale processes

Designing and implementing structures for sports tournaments and other JVs involving sporting events

Working with companies in the context of tax audits and refund claims

Venture Capital and Intellectual Property

Licensing and other collaboration agreements for for-profit and tax-exempt organizations

Structuring start-ups and representing early stage investors

Representing investors in the context of transformative transactions for underlying portfolio companies

Capital Markets

IPOs, debt and equity offerings and tack-ons, including via “Up-C” structure with tax receivables agreement

Real Estate

Joint ventures, as well as acquisitions and dispositions of realty, in both contexts structuring for tax sensitive investors

Photo of David S. Miller David S. Miller

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers…

David Miller is a partner in the Tax Department. David advises clients on a broad range of domestic and international corporate tax issues. His practice covers the taxation of financial instruments and derivatives, cross-border lending transactions and other financings, international and domestic mergers and acquisitions, multinational corporate groups and partnerships, private equity and hedge funds, bankruptcy and workouts, high-net-worth individuals and families, and public charities and private foundations. He advises companies in virtually all major industries, including banking, finance, private equity, health care, life sciences, real estate, technology, consumer products, entertainment and energy.

David is strongly committed to pro bono service, and has represented more than 200 charities. In 2011, he was named as one of eight “Lawyers Who Lead by Example” by the New York Law Journal for his pro bono service. David has also been recognized for his pro bono work by The Legal Aid Society, Legal Services for New York City and New York Lawyers For The Public Interest.

Photo of Amanda H. Nussbaum Amanda H. Nussbaum

Amanda H. Nussbaum is the chair of the Firm’s Tax Department as well as a member of the Private Funds Group. Her practice concentrates on planning for and the structuring of domestic and international private investment funds, including venture capital, buyout, real estate…

Amanda H. Nussbaum is the chair of the Firm’s Tax Department as well as a member of the Private Funds Group. Her practice concentrates on planning for and the structuring of domestic and international private investment funds, including venture capital, buyout, real estate and hedge funds, as well as advising those funds on investment activities and operational issues. She also represents many types of investors, including tax-exempt and non-U.S. investors, with their investments in private investment funds. Business partners through our clients’ biggest challenges, Amanda is a part of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team helping to shape the guidance and next steps for clients impacted by the pandemic.

Amanda has significant experience structuring taxable and tax-free mergers and acquisitions, real estate transactions and stock and debt offerings. She also counsels both sports teams and sports leagues with a broad range of tax issues.

In addition, Amanda advises not-for-profit clients on matters such as applying for and maintaining exemption from federal income tax, minimizing unrelated business taxable income, structuring joint ventures and partnerships with taxable entities and using exempt and for-profit subsidiaries.

Amanda has co-authored with Howard Lefkowitz and Steven Devaney the New York Limited Liability Company Forms and Practice Manual, which is published by Data Trace Publishing Co.

Photo of Jay Waxenberg Jay Waxenberg

Jay Waxenberg is a partner in our Private Client Services Department and a former Chair. He advises on all aspects of multi-generational wealth planning and has particular expertise in complex estate planning, related tax work and the administration of estates and trusts. As…

Jay Waxenberg is a partner in our Private Client Services Department and a former Chair. He advises on all aspects of multi-generational wealth planning and has particular expertise in complex estate planning, related tax work and the administration of estates and trusts. As a member of our Fiduciary Litigation Group, Jay is regularly involved in will contests and other estate- and trust-related litigations. He is a member of the Firm’s Executive Committee.

Jay has extensive experience working with high-net worth individuals and their estates and has assisted clients, often for many years, in the structuring of their estate plans so as to minimize gift, estate and generation-skipping taxes in the transmission of their wealth through several generations. Lauded by his clients as “an all-star private client lawyer” who is “very focused on client service,” he is involved in the full range of his clients’ economic and personal concerns, including closely held businesses, commercial and residential real estate holdings, artistic collections and philanthropy. Jay has helped his clients structure new business ventures, restructure existing ventures with an emphasis on shifting appreciation potential to younger generations, and has guided the sale and liquidation of businesses. He regularly handles family matters, such as the preparation of prenuptial and postnuptial agreements, counsels on charitable giving and structures plans to enable client’s businesses to remain intact at their death, and to ensure the desired continuity of ownership and control.

Jay lectures regularly on estate planning topics and has written numerous articles that have appeared in various legal publications. He is a Fellow of the American College of Trust and Estate Counsel. Jay is a former Chair of the Estate and Gift Tax Committee of the Association of the Bar of the City of New York. He serves on the professional advisory committees of a number of museums and hospitals in New York.