Year: 2011

Year End 100% Aircraft Bonus Depreciation

Aircraft Bonus Depreciation
Aircraft bonus depreciation still in sight

From year-end 2011:  “As the holidays approach our thoughts become preoccupied with but one thing: how can I purchase an aircraft and write off 100% of the cost basis in the first year? Well, perhaps not for everyone, but here’s what you need to know: if you purchase an aircraft and place it in service by December 31, 2011 you will qualify for the 100% bonus provision provided you meet all of the other requirements. This is a considerable benefit under any circumstances.

If this is NOT possible, however, and you must place your aircraft in service next year, you are probably still better off than you would have been had you “only” been able to take the 50% bonus. This is because assets placed in service in the fourth quarter of the year do not receive the full first-year depreciation allowance. Your bonus allowance reverts back to 50% for assets placed in service in 2012. By waiting until early next year, you still receive this benefit, but are now able to take the full year MACRS depreciation allowance. In other words, unless the value of your depreciation allowance is considerably greater than it will be next year, you’re better off taking your time and making sure you have done your tax planning carefully, not only at the federal but also at the state – sales tax – level.”

Update 2012:  The good news:  100% bonus depreciation is still with us on qualified aircraft purchases through the end of this year.  What’s “qualified”?  There are several factors, including that you purchase a new (or substantially rebuilt) aircraft, and that you take delivery and place it in service before the end of the year.

The bad news:  This might not be around forever, which as bad news goes is pretty acceptable in my book.

The Jet Market: By The Numbers

The following September data comes from Chase Equipment Finance:

September Overview:
o Approaching crunch time for 2012 delivery outlook
• Order activity for the remainder of the year, particularly Q4, will be critical for determining whether next year’s deliveries will meet estimates
• Analysts forecast a 20% increase off the bottom in 2012, but this will require a pickup in demand that has been slow in coming and confined to the larger segment of the market
o Used market trends flipped in August
• Last month saw higher prices and higher inventories, the opposite of what has been observed for most of the year
• The increase in prices is a positive sign and the bump up of used inventories may be a reflection of broader economic weakness, but one data point is not enough to determine that the trends are changing
o Used jet inventories increased by 20 bps
• Inventories for sale as a percentage of the active fleet increased to 10.5% in August
• By category, Heavy (+0.3%), Medium (+0.1%) and Light (+0.2%) jet inventories were all up from the prior month
o Average asking price increased 0.2%
• Average price rose to $10.64MM in August, and is down 6.4% y/y
• Heavy jet prices decreased 0.3%, while Medium and Light jet prices increased 1.1% and 1.6%, respectively

Aircraft Personal Use: SIFL Rates For The Second Half Of 2011

Part of the “ingredients” in calculating personal use under the SIFL (Standard Industry Fare Level) rules include a per-mile charge for flights that require this methodology. For the uninitiated, the SIFL calculation is used to impute income to a plane owner who either: (i) brings “hitchkikers” along as personal guests on business trips, or (ii) flies for a special class of reasons known as “personal non-entertainment”. In short, the business owner compensates the U.S. taxpayer for using, or granting, the “fringe benefit” of allowing a business plane to be used for personal reasons.

The most updated figures (for flights taken between 7/1/11 -12/31/11):

Period During Which the Flight Is Taken

Up to 500 miles = $.2395 per mile
501-1500 miles = $.1826 per mile
Over 1500 miles = $.1756 per mile

Terminal Charge = $43.79

These charges are calculated for that group of miles and added together, so, for example, a 1000 mile flight will require calculating (500 miles x $0.2395) plus (500 miles x $0.1826). The more you fly, the better the deal (sometimes).

There is also a “terminal charge” that is updated twice a year. For the second half it is $43.79 per SIFL-qualified flight.

(Updated 10/03/2011)
Source: Rev. Rul. 2011-21, 2011-40 IRB 458, 09/30/2011

IRS Takes Aim At Professionals

The IRS maintains “Audit Technique Guides” for use by its examiners in auditing different types of businesses. These guides identify the issues that the auditor should be reviewing and the types of documentation the auditor should review in addressing these issues.

The taxpayer can use these Guides to his advantage in several ways. Naturally it is always helpful to have your opponent’s playbook before the game. While an auditor might not be bound strictly to the principles in the Guide (it is advisory rather than mandatory), you can point to its guidelines if there are points of disagreement as to what the auditor wants to review or the scope of the audit. Always remember, too, to verify that the years to be examined are not closed (generally tax years more than 3 years absent fraud and with timely filed returns). You can similarly point to the Internal Revenue Manual (I.R.M.) as “persuasive” authority that you are correct on a particular point of tax law.

With that background, the Service has recently updated its guides for audits of Attorneys and Business Consultants. One particular area of interest is in the Attorney guide on the subject of attorney-client privilege. The guide correctly recognizes that an attorney and his or her client have the right to assert this privilege against the IRS. The Service may be able to overcome this privilege in some cases by issuing a summons, if there is evidence of fraud or in criminal matters. The tax attorney must carefully review the information to be produced, however, consistent with his or her ethical obligations to his clients, and insist that the Service strictly adhere to its procedures for issuing summons to acquire protected communications. The Service may not audit an attorney as a fishing expedition for information about the attorney’s clients.

As a tax attorney I often represent other professionals against the IRS and Florida Department of Revenue in federal income tax, and Florida sales tax, use tax and employment tax audits. If you would like more information about defending your legal rights in this area please visit me at https://www.goodattorneysatlaw.com/tax.html.

For the IRS Attorney Audit Technique Guide see http://www.irs.gov/businesses/small/article/0,,id=241098,00.html