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New Corporate Tax Increase Proposal and Focused IRS Audits – Is the Cost of Business Going Up?

Establish and Manage Intellectual Property for Offshore Licensing

The Biden Administration’s new corporate tax increase proposal will face substantial challenges in both branches of Congress this year. The IRS continues to focus on the tax profiles of large corporations, limited partnerships and high-income individual US taxpayers.  Is the cost of business going up?

The administration recently proposed an increase of the corporate alternative minimum tax from it’s present level of 15% to 21% “so every big corporation finally begins to pay their fair share.”  The proposal also asks for an increase in the corporate tax rate to 28% (a 7% increase over the present rate) as well as the imposition of a 25% “minimum tax” on specifically targeted high-income individual taxpayers. 

The administration’s proposal also targets a substantial increase related to tax rates for offshore earnings by multinational corporate entities to 21% – doubling the existing rate of 10.5%.  US corporations with offshore revenues are also concerned about the proposed adoption of the Undertaxed Profits Rule or UTPR that would drive an increase on US corporate taxes when an entity is owned by a large multinational corporation that pays less than the proposed minimum tax rate of 15% on corporate earnings in other jurisdictions.

Will Proposed Changes to Corporate Aircraft Taxes Fly?

The Biden administration also wants to end corporate tax breaks for aircraft and announces efforts focused on “cracking down on corporate jet loopholes.”  The proposed policies would increase the tax paid for the type of jet fuel used in corporate aircraft by nearly 500% from the present rate of $0.22 per gallon to $1.06 per gallon.  The tax rate on this fuel type has not increased in more than 30 years.

Presently, the typical airline passenger pays more than 7% tax on their airfare as well as a “Passenger Facility Charge which is not to exceed $4.50 for each segment of an individual passenger’s itinerary.  These taxes help to support the cost of operating the National Airspace System.  Corporate aircraft are only required to pay additional taxation through fuel tax rates, accounting for roughly half of one percent of tax revenues collected by the Federal Aviation Administration or FAA, even though corporate air traffic accounts for 7% of all US air traffic. Is the cost of business going up?

IRS Recently Announced Audits of Corporate Aircraft Expenses

Business entities with corporate aircraft also face the likelihood of an IRS audit related to the use of “business aircraft” by Large US corporations, partnerships and high-income individual US taxpayers.  The questions will focus on all deductions associated with this class of assets and the proper allocation of expenses regarding whether the aircraft was used for business, personal interests or a blend of the two.  Use of a company jet for personal travel should also generate “income inclusion” – roughly equal to the cost of first class airfare for the same travel if were undertaking on a commercial airliner.

These efforts reflect the IRS’ continuing focus upon large corporate entities, partnerships, and high-income taxpayers to ensure they pay “what is legally owed under federal law,” according to IRS Commissioner Danny Werfel. The Commissioner continues to stress the work the agency is undertaking to “reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act.” Is the cost of business going up?

Do you have a US corporation that conducts business across-border or around the world? Does your corporate structure support corporate aircraft? Are you interested in evaluating the way you presently conduct international business to reduce expenses and the impact of US corporate taxes and international business taxation?

We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and  contact us or call today to schedule a free consultation at 866-631-3470.