Guest Article

(From the May 22, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Update on Tax Legislation Regarding Personal Use of Corporate Aircraft

The revenue reconciliation bill President Bush signed into law on May 17, 2006, cited as the "Tax Increase Prevention and Reconciliation Act of 2005," does not change the current rules regarding personal use of employer-provided aircraft. Although omitted from this legislation the Senate-proposed aircraft provisions may still appear in upcoming legislation (e.g., a second package of tax cuts or pension legislation).

Overview

On November 18, 2005, the Senate passed a revenue reconciliation bill (S. 2020 and Senate Amendment 2658) that proposed changes to the tax treatment of the personal use of employer-provided aircraft. On December 8, 2005, the House passed its version of the revenue reconciliation bill (H.R. 4297), which made no changes in the tax treatment of the personal use of corporate aircraft.

The Senate proposal would extend the limitation on the deduction for expenses related to the personal use of such aircraft to all employees and independent contractors, not just specified individuals. In addition, the Senate proposes to value any employee personal use of an employer-provided aircraft at the greater of (1) the fair market value of flights taken or (2) the actual cost (which takes into account both fixed and variable expenses), less any amount paid to the employer by the employees. Effectively, the SIFL method of valuing noncommercial flights would no longer exist.

On February 2, 2006, the Senate approved its own version of H.R. 4297 by inserting the Senate proposed rules regarding personal use of employer-provided aircraft, among other provisions, into the House-passed version. The differences between the two bills were resolved in a conference committee. On May 9, 2006, the House and Senate conferees released the details of the final agreement. The conference report did not contain any proposed aircraft provisions. H.R. 4297, cited as the "Tax Increase Prevention and Reconciliation Act of 2005" was passed by the House on May 10 and by the Senate on May 11. President Bush signed the bill into law on May 17th.

Outlook

Although the Senate-proposed aircraft provisions were omitted from the conference report, a second package of tax cuts is expected which may include many provisions from the House- and Senate-passed reconciliation bills that were not in this conference report. It is possible that the Senate-proposed aircraft provisions could be included in the second package.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.