IRS to focus on personal aircraft use within exempt organizations

ARTICLE | March 06, 2025

Authored by RSM US LLP

Executive summary

The Treasury Inspector General for Tax Administration (TIGTA) recently concluded that the IRS provides limited oversight of private aircraft use by exempt organizations, recognizing that the Form 990-series returns do not specifically include lines to report or disclose this information. Moreover, the IRS does not currently have project or examination codes to track examinations related to private aircraft issues.

TIGTA acknowledged that the Tax Exempt and Government Entities Division (TE/GE) is in the process of developing a compliance strategy related to the use of private aircraft by tax-exempt organizations, which follows a similar initiative by the Large Business and International Division (LB&I) to address tax compliance issues arising from the use of aircraft by other taxpayers.

Corporate jet personal use compliance strategy under development

The IRS formally approves programs, known as compliance strategies, to focus resources on addressing noncompliance issues in priority and high-risk areas, typically through examinations and compliance checks. For exempt organizations, the IRS maintains and updates a compliance program and priorities website that lists its current strategies.

In April 2024, TE/GE began developing its corporate jet personal usage compliance strategy. However, as of February 2025, TE/GE is still in the planning phase with no expected completion dates. Following its normal strategy development process, TE/GE is conducting data analysis to establish measures and metrics that can be used to identify potential noncompliance of private aircraft use by exempt organizations. However, TIGTA notes that TE/GE faces significant challenges in relying on return data due to the following reasons:

1. The absence of aircraft-specific information on Form 990-series returns;
2. Form 990 filing exceptions (i.e., no return information available); and
3. Special audit procedures governing churches.

According to TIGTA, TE/GE is not aware of any completed examinations that involved private aircraft use and are unable to identify whether the Exempt Organizations function has ever assessed any excise taxes or revoked the exempt status of an organization for failing to report personal use of a private aircraft.

Considerations for exempt organizations

There are a variety of organizations that use aircraft in furtherance of their exempt purpose. The TIGTA report provides several examples, including charities that facilitate rapid responses to disaster and emergency situations, educational institutions that utilize air travel for fundraising activities, and environmental organizations that conduct wildlife surveys and habitat monitoring.

The primary area of concern relates to the potential for personal use of aircraft that is owned or leased by an exempt organization, which could result in the following:

Income and employment tax reporting obligations

To the extent there is personal use of private aircraft by an exempt organization employee (or their family members), the value of such use must be included in the individual’s gross income and would be subject to payroll reporting requirements as a taxable fringe benefit.

Private benefit

The assets and activities of a section 501(c)(3) organization must serve public and not private interests. Improper personal use of an exempt organization’s aircraft – by any individual, not necessarily an employee or insider – could constitute a private benefit, which may result in the imposition of excise taxes on the individual or jeopardize the organization’s exempt status.

Excess benefit transactions

Any excess economic benefit provided by a section 501(c)(3) public charity, or by a section 501(c)(4) or 501(c)(29) organization, to its disqualified persons is subject to an excise tax as well as correction and reporting requirements. Disqualified persons generally include individuals with substantial influence over the organization’s affairs, as well as their family members and businesses. Excess benefit transactions can also result from compensatory benefits (e.g., spousal travel) that are not accurately reported as compensation.

Self-dealing

Private foundations are generally prohibited from engaging in any transactions that directly or indirectly benefit its disqualified persons. There is a narrow exception that permits certain payments of reasonable compensation, which could include travel-related benefits. However, private foundations should carefully evaluate any personal use of aircraft, particularly by foundation directors, officers, or their family members, to ensure it does not constitute self-dealing. Consequences of engaging in a prohibited self-dealing transaction include unwinding the transaction, reporting it to the IRS, and having the disqualified person pay an excise tax.

RSM takeaways

Although TE/GE is still in the planning phase for its anticipated compliance strategy, the TIGTA report highlights the importance of complying with relevant tax law and reporting requirements. Exempt organizations that utilize private aircraft (either owned, gifted, or leased) should consider taking the following steps:

• Review the organization’s airplane use policy.
• Maintain detailed records to track aircraft usage (e.g., identifying users and whether purpose was for business, personal, or entertainment reasons).
• Take steps to protect against excess benefit or self-dealing transactions.
• Ensure proper reporting of compensatory travel (e.g., spousal travel).