IRS discusses amount deductible for use of private plane.

• Author: Fiore, Nicholas J.

Businessman X is sometimes required to travel away from home on business. For a number of years, X has claimed substantial losses attributable to S corporation A on his individual Federal income tax return. A has been identified as an "airplane charter." Until several years ago, X was A's sole shareholder. Since then, Trust C (apparently X's grantor trust) has been A's sole owner. C also owns B, a Subchapter C corporation, which, is X's personal service corporation.

A owns several airplanes not available for lease to the general public. A does not have a Federal Aviation Agency Part 135 license (which is apparently necessary to lease the airplanes to the general public). Instead, the airplanes are almost exclusively used by X and his family.

The only income earned by A comes from B. B negotiates contracts for X's services and arranges for X's travel. X uses the aircraft owned by A to fly to business locations. Sometimes specific amounts are negotiated to pay for the cost of X's travel with the companies that employ him. X, who is a pilot, also uses the airplanes for personal reasons. The amounts attributable to X's personal use of the airplanes are not deducted by A.

A has never shown a profit and has instead sustained losses each year. There is evidence that the amounts paid from B to A for use of the airplanes is less than their fair rental value. To make up for shortfalls in prior years, X has deposited amounts in A'S bank accounts.

X asserts that he needed to fly by private charter to meet his business commitments and, further, that owning his own airplane was superior to hiring a private charter company. Convenience, cost and safety were the reasons given.

X argues that it was more convenient to fly by private charter because he was often in remote locations, and there were no private charter companies in the vicinity. Although his schedule was often known well in advance for certain events, others would come up on short notice, and commercial flights, with their delays and lack of connections, were far too inconvenient. Private charters also allowed him to work while on the airplane without the distractions of public intrusions.

X also argues that it could actually be more costly to hire a private charter than to use his own plane. He gives two examples. First, when there are no private charter companies in the vicinity, X would have to pay for the flight to bring the plane to him, and then for the return on the airplane to the home...